A Hidden Gem Among Technology ETFs

With the Nasdaq Composite down nearly 1%, perhaps this is not the time to be talking technology ETFs. Then again, it might be a good time to start evaluating technology exchange traded funds that merit buy-on-the-dip consideration.

The SPDR Morgan Stanley Technology ETF MTK is an ETF to consider. Often overlooked relative to more prosaic technology ETFs, such as the Technology Select Sector SPDR XLK and the PowerShares QQQ QQQ, MTK is by no means small. MTK, which celebrates its 15^th anniversary in September, has quietly amassed $430.5 million in assets under management.

What makes that total truly impressive is that at a time when investors are selling out of traditional tech ETFs, MTK has added over $182 million in new assets this year. That’s over 42% of the ETF’s current assets under management tally. 

A look at MTK’s holdings belies the ETF’s overlooked status. Netflix NFLX is MTK’s largest holding at a weight of just over 6%. Said another way, MTK is home to one of the largest weights to Netflix of any ETF. The large-by-comparison weight to Netflix is the tip of the iceberg when it comes to MTK’s departure from the tech ETF norm.

The ETF also features a 4.7% weight to Amazon AMZN. Excluding dedicated Internet and consumer discretionary funds, MTK’s Amazon exposure is also high in the world of ETFs. Throw in an almost 3.3% weight to Facebook FB and a combined 6.6% weight to two classes of Google GOOG, and it becomes obvious why MTK is a quiet leader among tech ETFs.

MTK is up 8.4% over the past six months, a showing that is more than double the average return of XLK and QQQ over the same period. MTK has been able to trump its more heralded rivals without the benefit of large weights to Dow components Apple AAPL and Microsoft MSFT. Those stocks combine for more than a quarter of XLK and QQQ, but just 5.7% of MTK’s weight, according to issuer data. 

MTK’s tilt towards some of the Internet and tech space’s momentum might imply investors will be pay up on valuation to get involved with the fund. However, MTK’s price-to-earnings ratio of about 20.9 is only modestly higher than QQQ’s multiple of 20.3.

Plus, MTK is home to some of the most cash-rich companies in Corporate America. Based on end-of-2014 stockpiles, four of the five most cash-rich U.S. companies are current MTK holdings.