Should You Invest in the Technology Select Sector SPDR ETF?

The Technology Select Sector SPDR ETF XLK was launched on 12/16/1998, and is a passively managed exchange traded fund designed to offer broad exposure to the Technology - Broad segment of the equity market.

Retail and institutional investors increasingly turn to passively managed ETFs because they offer low costs, transparency, flexibility, and tax efficiency; these kind of funds are also excellent vehicles for long term investors.

Sector ETFs also provide investors access to a broad group of companies in particular sectors that offer low risk and diversified exposure. Technology - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 10, placing it in bottom 38%.

Index Details

The fund is sponsored by State Street Global Advisors. It has amassed assets over $65.63 billion, making it the largest ETF attempting to match the performance of the Technology - Broad segment of the equity market. XLK seeks to match the performance of the Technology Select Sector Index before fees and expenses.

The Technology Select Sector Index includes companies from the following industries: computers & peripherals; software; diversified telecommunication services; communications equipment; semiconductor & semiconductor equipment; internet software & services; IT services; wireless telecommunication services; electronic equipment & instruments; and office electronics.

Costs

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive counterparts if all other fundamentals are the same.

Annual operating expenses for this ETF are 0.09%, making it one of the least expensive products in the space.

It has a 12-month trailing dividend yield of 0.70%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Information Technology sector--about 100% of the portfolio.

Looking at individual holdings, Microsoft Corp MSFT accounts for about 24.19% of total assets, followed by Apple Inc AAPL and Nvidia Corp NVDA.

The top 10 holdings account for about 67.46% of total assets under management.

Performance and Risk

So far this year, XLK has added about 10.22%, and was up about 38.16% in the last one year (as of 05/20/2024). During this past 52-week period, the fund has traded between $154.31 and $213.03.

The ETF has a beta of 1.14 and standard deviation of 23.93% for the trailing three-year period, making it a medium risk choice in the space. With about 68 holdings, it effectively diversifies company-specific risk.

Alternatives

Technology Select Sector SPDR ETF holds a Zacks ETF Rank of 1 (Strong Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, XLK is an outstanding option for investors seeking exposure to the Technology ETFs segment of the market. There are other additional ETFs in the space that investors could consider as well.

IShares U.S. Technology ETF IYW tracks Dow Jones U.S. Technology Index and the Vanguard Information Technology ETF VGT tracks MSCI US Investable Market Information Technology 25/50 Index. IShares U.S. Technology ETF has $17.01 billion in assets, Vanguard Information Technology ETF has $67.32 billion. IYW has an expense ratio of 0.40% and VGT charges 0.10%.

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