The technology sector has outperformed this year as investors jumped on high-growth stocks. Among the various ways to access the tech segment, one smart beta tech-related exchange traded fund has stood out.
The First Trust Technology AlphaDEX Fund (NYSEArca: FXL) increased 36.9% year-to-date, compared to the 31.5% gain in the S&P 500 Information Technology Index.
The First Trust Technology AlphaDex Fund has also been a popular play in recent trading sessions. Over the past week, FXL gathered $696 million in net inflows, according to XTF data.
While traditional market capitalization-weighted funds are still the dominant players in the world of exchange traded funds, data continues to point to a rapid acceleration of growth for alternatively-indexed or smart beta ETFs, like FXL.
FXL tries to reflect the performance of the StrataQuant Technology Index, an “enhanced” index developed by ICE Data Indices, which employs the AlphaDEX stock selection methodology to select companies from the Russell 1000 Index. Specifically, IDI ranks stocks on growth factors including three, six and 12-month price appreciation, sales to price and one year sales growth, and, separately, on value factors including book value to price, cash flow to price and return on assets, according to First Trust.
The ETF includes a 28.4% tilt toward semiconductors, 23.7% to software, 19.0% to electronics, 9.5% to IT services, 8.0% internet software, 7.9% communications equipment and 3.5% tech hardware. Components are also more or less equally weighted, with top holdings including Universal Display Corporation 2.8%, Cognex 2.6%, Corporation and IPG photonics Corporations 2.5%.
Due to its factor-based and equally weighted indexing methodology, FXL has a larger tilt toward mid-cap companies at 55.7% of the fund’s portfolio, along with 13.1% mega-caps, 29.1% large-caps and 2.2% small-caps.
Related: In an Ongoing Rally, ETF Investors Should Review Their Market Tilts
In contrast, the S&P 500 Information Technology Index, which follows a traditional market cap-weighting methodology, focuses on prominent names like Apple, Microsoft and Facebook, which make up about 15%, 11% and 7% of the overall weights. Furthermore, the index includes a hefty 71% tilt toward mega-cap companies and 22% to large-caps.
Large-cap tech companies have outperformed this year as investors focused on high-growth names, which should allowed the S&P Tech segment to outperform a fund with a greater focus on mid- and small-sized companies. However, FXL’s heavy tilt toward the outperforming semiconductors segment may have allowed the smart beta ETF to make up for its deficiencies.
For more information on the tech sector, visit our technology category.