Why Investors are Choosing XLK for Tech Exposure

When most people think of tech ETFs, the Invesco QQQ ETF (QQQ), which tracks the Nasdaq-100 Index, likely hits the top of the list. 

However, the Nasdaq-100 Index isn’t fully compromised of tech stocks. For example, it includes companies like PepsiCo (PEP), Costco (COST), and Amgen (AMGN). 

Moreover, it misses some of the heavy hitters that trade on the NYSE, like  Oracle (ORCL), ServiceNow (NOW), and Salesforce (CRM).

If you’re an investor seeking a diversified tech-focused ETF, you’ve got options. 

We did things a little differently this week and looked at technology ETF searches by retail investors.

Technology Select SPDR Fund (XLK) can out at the top of the list just barely edging out the Vanguard Information Technology ETF (VGT).

It’s the most actively traded diversified tech ETF,.

Yet, it’s not the biggest, even with more than $63 billion under management.

So, is it the right tech ETF for your portfolio? 

Key Facts About XLK

• Net assets: $63.9 billion
• 12-month trailing yield: 0.73%
• Inception: December 16, 1998
• Expense ratio: 0.09%
• Number of holdings: 68

Despite 68 positions in the portfolio, it’s highly concentrated, with the top ten holdings making up 67.2% of its weight. 

The ETF follows a market cap-weighted approach, allowing larger companies to make up a greater proportion of the ETF.

Source: Select Sector SPDRs

The ETF boasts deep liquidity with over 6.6 million daily shares traded and options expiring weekly.

It also has a 0.09% expense ratio, making it one of the lowest-cost ETFs available.

Performance

The Technology Select Sector SPDR Fund (XLK) has demonstrated strong performance up to the first quarter of 2024, with an 8.5% increase year to date and an impressive annual gain of 39.1%. 

Over longer periods, XLK has maintained robust growth, yielding a 24.2% return over five years and 20.7% over the last decade. 

The fund has consistently offered substantial returns, affirming its solid standing in technology sector investments.

Source: Select Sector SPDRs

Competition

The ETF space is overcrowded, so it shouldn’t be a shock that you have options similar to XLK. 

Here are some of the more compelling tech-focused ETFs:

• Vanguard Information Technology ETF (VGT):  VGT holds a larger pool of assets at $73.5 billion and slightly higher five-year returns at 147.6%. VGT offers broader exposure to the IT sector by including credit card companies but excluding telecoms, gaming, and internet services, appealing to buy-and-hold investors.
• iShares U.S. Technology ETF (IYW): IYW, though smaller with $16.44 billion in assets, highlights a specialized focus by tracking the Russell 1000 Technology RIC 22.5/45 Capped Index with a notable five-year return of 169.3%.
• Fidelity MSCI Information Technology Index ETF (FTEC): FTEC has $9.4 billion (AUM) and a five-year return of 148.7%. FTEC tracks the MSCI USA IMI Information Technology 25/50 Index, providing comprehensive coverage of the U.S. IT sector.
• iShares Expanded Tech Sector ETF (IGM): IGM has the smallest assets at $4.3 billion and a five-year return of 138.6%. It offers an expansive definition of the tech sector, including tech-related stocks from communication services and consumer discretionary sectors.

As you can see from above, all five of these ETFs have provided incredible returns for investors. 

Unlike many other ETFs we’ve studied, greater diversification doesn’t necessarily hinder performance here.

Our Opinion 10/10 

The Technology Select Sector SPDR Fund (XLK) stands out as a stellar choice for investors seeking comprehensive exposure to the U.S. technology sector. 

Since its inception in 1998, XLK has consistently demonstrated strong performance, including an 8.5% increase year-to-date and an impressive annual gain of 39.1% through the first quarter of 2024. 

Over the past five years, it has maintained a robust growth rate of 24.2%, and over the last decade, it has yielded a 20.7% return.

For investors looking for a seasoned, well-rounded tech ETF, XLK merits a prominent place in your portfolio.

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