For a new investor, finding that first tech stock can be a daunting experience. Today, I’m going to discuss a tech ETF that every new investor should seriously consider. So, let’s get to it!
The Technology Select Sector SPDR® (XLK) is an exchange-traded fund (ETF) with a technology focus. It’s great for new investors. I’m going to run through a two-step process to evaluate XLK and its potential to reward investors.
Fundamental View of XLK
When looking at the XLK from a fundamental perspective, we’ll consider the ETF’s goals, financial ratios, and other pertinent market data.
State Street Global Advisors (SSGA) is a great place to grab fundamental data.
The XLK tracks the Technology Select Sector Index (IXT). This index represents technology-related companies in the S&P. Those companies offer a range of projects, include technology, hardware storage, software, and communications – it’s a broad representation of everything tech.
Lower Expense For Same Exposure
XLK has a low gross expense ratio of 0.12, considerably lower than mutual funds. There isn’t a ton of management that goes into running the XLK. However, that doesn’t mean that the XLK is some small player. There is currently $44B in assets under management, making XLK one of the biggest players in the technology space.
The dividend yield is not that impressive, but that’s not surprising considering that most tech companies have low dividend payouts.
1M Performance ≈4%
1Y Performance ≈30%
3Y Performance ≈30%
As of September 23, 2021
The 1-year and 3-year performances are about even, but a 9% annual return is decent.
XLK’s composition closely mirrors the makeup of the Technology Select Sector Index (IXT). This means you can participate in the technology sector without purchasing individual stocks while diversifying among the big tech players.
Apple, Inc. (AAPL) and Microsoft Corporation (MSFT) are the XKL’s heaviest holdings with a combined fund weight of approximately 43%. NVIDIA Corporation (NVDA) makes up a little over 5% of the portfolio, with Visa Inc. (V), PayPal Holdings (PYPL), Mastercard (MA), Adobe Inc. (ADBE), Salesforce.com Inc. (CMR), Cisco Systems (CSCO), and Intel Corporation (INTC) do not individually exceed 4% of the fund’s total weight. By industry, the XLK holds 35% of software companies, 23% of hardware companies, and 20% of semiconductor companies.
The Big Picture
- XLK mimics the IXT
- XLK is made up of the who’s who of tech companies
- The expense ratio is considerably lower than mutual funds
Technical View of XLK
After looking at fundamental data for XLK, we can pivot to technical analysis of this popular tech ETF. Technical analysis deals with price movement and chart patterns and relies heavily on charts.
If you are a new investor, you may want to focus on the longer-term view of stocks, ETFs, futures, or mutual fund markets. Once you get your footing and understand basic technical concepts, you can hone in on shorter-term patterns.
MarketClub allows you to see XLK through a technical analysis lens using the Chart Analysis Score and Trade Triangle technology.
MarketClub triggered a green long-term Trade Triangle in 2016, which held until 2018. That was a relatively long time that the XLK was basically in a positive or a buy zone. A new bullish signal was triggered again in 2018 and 2019 before a sell-off in 2020. However, the XLK has been in a bullish direction since.
Looking at MarketClub’s triangles on multiple time-frames, XLK looks like it could be a long-term play with some possible choppy action in the immediate future.
The Big Picture
- XLK is flashing bullish signals
- Short-term weakness could set the stage for some choppy price action
Show Me More
If you like the MarketClub tools I used to review XLK, check out my free report, 3 Hot Stocks to Buy Right Now. I’ll share what I think are top stocks that any investor should consider given current market conditions.
About the Author
Wayne is CEO of Burritt Research, Inc. and loves helping people find solutions to problems using data and blockchain. The harder the problem, the better. His journey began with VisiCalc and led him to work for companies like Bank of America, Morgan Stanley, and Weiss Research.
He began writing for INO.com in 2014. When he’s not coding or writing, he hangs out with his wife Debi in the mountains of southwest Virginia. Wayne is a certified IBM Data Science Professional and holds an MBA from Golden Gate University and a BA in English and Philosophy from Indiana University. Take a look at more of Wayne’s work at burrittresearch.com and on medium.com.