Tech ETF Tempts Again

The Technology Select Sector SPDR XLK, the largest technology exchange-traded fund by assets, took its lumps at the end of the first quarter. Those lumps appear short-lived as XLK has posted a second-quarter gain of nearly 6 percent.

Various data points suggest investors are once again embracing XLK, an ETF known for its large weights to tech titans such as Apple Inc. AAPL, Microsoft Corporation MSFT and Alphabet Inc. GOOGL, among others.

What Happened

Tuesday was a busy day for XLK thanks to two sizable block trades.

“Investors bought a combined 3 million shares of XLK worth $202 million between the two trades, the largest intraday transactions this year," according to data compiled by Bloomberg.

XLK holdings include companies engage in “technology hardware, storage, and peripherals; software; diversified telecommunication services; communications equipment; semiconductors and semiconductor equipment; internet software and services; IT services; electronic equipment, instruments and components; and wireless telecommunication services,” according to the issuer.

Why It's Important

Traders renewing their enthusiasm for XLK could be a sign they're wagering on more upside for the likes of Apple, Alphabet and Facebook Inc. FB. That trio combines for nearly 32 percent of XLK's roster.

Enthusiasm for technology stocks is usually good for the broader market. The S&P 500 devotes 25.66 percent of its weight to technology stocks and four of XLK's top 10 holdings are also top 10 components in the S&P 500.

Last month, shares outstanding in XLK contracted, meaning Tuesday's inflows could serve to reverse those recent departures. Short interest in XLK stood at 7 percent at the end of April, according to Alta-Vista Research.

What's Next

“Expectations for this year are for acceleration on the top line as corporations boost capital spending following the tax cut, but analysts also foresee a substantial slowdown for 2019E,” said AltaVista. “Overall we rate Tech on par with the S&P 500.”

The research firm has a Neutral rating on XLK.

Related Links:

Revisiting Japan ETFs

More No Commission ETFs