Please ensure Javascript is enabled for purposes of website accessibility

The Top Tech ETF of the Week

By Jamal Carnette, CFA - Jan 17, 2016 at 9:30AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

For the trading week ended Jan. 15, which tech-related exchange-traded fund fared the best?

SOURCE: FLICKR USER GOTCREDIT.

The proliferation of ETFs has arguably been the best trend for ordinary retail investors during the past decade. Because they're composed of many different stock holdings, ETFs offer investors instant diversification, much like mutual funds. However, ETFs generally offer this diversification with lower fees, more price transparency, and better tax efficiency.

However, you should still learn about an ETF and the niche it represents before you buy a share of it. This consideration is especially important in the fast-moving technology field.

With that in mind, let's look at the top non-levered, non-inverse tech-sector ETF this week. With more than $200 million in assets under management and sufficient trading volume, this ETF outperformed the Nasdaq Composite's 3.4% loss for the trading week ended Jan. 15.

The worst start to a year on record
The stock market continues to struggle, as 2016 has produced the worst first two-week start ever in the financial markets. A combination of increased interest rates and negative news from China continues to overshadow a strong U.S. labor market. On Friday alone, the Nasdaq lost 2.7%; against that backdrop, State Street's Technology Select Sector SPDR ETF (XLK 0.03%) narrower loss of 1.9% outperformed the greater Nasdaq.

This passive investment seeks to replicate the S&P 500 Technology Sector Index. The top five companies held by weight -- Apple (AAPL -0.57%), Microsoft, Facebook, Alphabet (both A and C shares), and AT&T (T -0.71%) – comprise a massive 47% of the ETF.

Although the ETF is rather concentrated, there's a lot to like about the investment. The expense ratio of 0.15% is on the low end of ETFs, with net assets of nearly $14 billion, and is highly liquid, with average volume of 12 million shares traded a day. On a comparative basis to the S&P 500, the ETF trades at a price-to-earnings ratio of 17, with a 1.8% yield versus the S&P's valuation of 20 and 2.3%, respectively.

What worked for State Street's Technology Select Sector ETF?
For the past week, there were two investments that strongly aided the ETF's performance. For the recently completed week, Apple overperformed the greater malaise on the back of a positive report from Gartner as to the company's second-largest division by revenue, its Mac line. According to the analyst firm, Apple was the only large PC maker to see its fourth-quarter shipment volume grow on a year-on-year basis.

The 2.8% year-on-year growth from the Mac division was nothing to write home about, but when compared with the greater PC's market's 8.3% decrease, the relative performance looks much better. Perhaps the biggest reason for Apple's stock performance this week, however, is the company's extremely low valuation multiples. The company trades at a price-to-earnings multiple of 11, a figure half of the greater S&P 500.

Additionally, AT&T had a week of overperformance in part because of relative cheap multiples. A combination of a cheap forward price-to-earnings ratio of 12 alongside a high dividend yield of 5.7% helped support the company's stock price this week. A positive note also helped concerning AT&T Wireless' reintroduction of unlimited data plans, but only for DirecTV and U-Verse users, providing insight into how the company would cross-sell its services and further monetize its newly completed DirecTV division.

If you're in the market for a large-cap technology exposure, check out State Street's Technology Sector Select SPDR to see if it fits your investing profile. 

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Jamal Carnette owns shares of Apple and AT&T. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, and Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Select Sector SPDR Trust - The Technology Select Sector SPDR Fund Stock Quote
The Select Sector SPDR Trust - The Technology Select Sector SPDR Fund
XLK
$150.11 (0.03%) $0.04
Apple Inc. Stock Quote
Apple Inc.
AAPL
$173.55 (-0.57%) $-1.00
AT&T Inc. Stock Quote
AT&T Inc.
T
$18.29 (-0.71%) $0.13

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
395%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/18/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.