This Large Cap ETF Could Break Out in 2021 | Smart Beta Channel

Investors are already looking forward to 2021 after a tumultuous 2020 that saw their portfolios suffer thanks to the Covid-19 pandemic. As the global economy continues to reopen and recover, certain exchange-traded funds (ETFs) are poised to break out next year, including one certain large cap fund.

Despite the economic effects of the pandemic, the stock market appears to be humming along. The major indexes in the U.S. are looking to end 2020 on a positive note, bonding well for ETFs such as the MSCI USA ESG Leaders Equity ETF (USSG).

“A major topic of discussion among investors is the apparent disconnect between the stock market and the real economy,” a Stock News article noted. “Despite the economic weakness, the Dow Jones Industrial Average has gained 22.5% and the S&P 500 returned 25.7% in the past six months. While there’s disagreement about the exact reasons behind the booming stock market, most analysts expect the market to continue higher in 2021.”

According to the article, “major drivers of the economic recovery are the reopening of businesses, resumption of normal economic activity, and government stimulus. Both monetary and fiscal stimulus will likely be deployed if the economy encounters any rough patches.”

One of the areas that has seen strong growth despite the pandemic is obviously technology. That said, one ETF to look forward to in 2021 is the Technology Select Sector SPDR ETF (NYSEArca: XLK), which tries to reflect the performance of the Technology Select Sector Index, which is comprised of technology and telecom sector of the S&P 500.

XLK includes the biggest movers and shakers within the tech industry, such as Apple and Microsoft. The fund is up close to 50% within the past year, according to Yahoo! Finance performance numbers.

XLK Chart

“XLK is one of the most popular ETFs investing in large-cap tech companies based in the United States,” the article said. “This State Street ETF is one of the best-performing ones so far in 2020 with $33.51 billion assets under management (AUM), as the growth pace of the technology and telecom industry has accelerated during the pandemic. Apple Inc. (AAPL) is the biggest holding of this ETF, constituting 23.6% of the total portfolio. Microsoft (MSFT) is a close second, with a 20.2% weightage.

“XLK has an expense ratio of 0.13% compared to the category average of 0.51%,” the article added. “The fund has returned 26.2% year to date, and 38.2% in the past six months, as the underlying stocks fared well during the pandemic. It pays an annual dividend of $1.19, yielding 1.02% on the current price. Its dividend has increased at a CAGR of 7.9% in the past three years.”

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