Technology ETF Showdown – XLK, RYT, TDIV

| October 3, 2013

tech stocksIn today’s ETF showdown, we’re taking a look at Technology ETFs.

As you know, ETF providers like iShares, State Street, ProShares, and many others offer ETFs that sound similar.  But just because they have a similar name, doesn’t mean they’ll have the same performance.

When your hard-earned money is on the line, selecting the right ETF is crucial to maximizing your profits and minimizing your losses. 

Let’s take a look at three popular technology ETFs… 

The big dog of technology ETFs is Technology Select Sector SPDR (XLK).  It has a whopping $11.7 billion in assets under management.  That’s four times as many assets than any of the other tech ETF. 

It’s a very liquid ETF with an average of more than 6 million shares trading hands on a daily basis. 

At a recent price of $32.24, XLK’s up 13% year-to-date.  That’s well below the 21% return in the S&P 500 this year. 

XLK does have one of the lowest expense ratios at just 0.18%. 

It has been weighed down by large holdings of underperforming mega-caps.  The two notable laggards the make up 20% of XLK are Apple (AAPL) and IBM (IBM).  AAPL accounts for 14% of XLK’s holding and is down 6.5% and IBM makes up 6% of XLK and it’s down 1.3%.    

However, the large weighting of large tech companies that tend to have higher dividends shows up in the annual dividend yield of 1.89%.     

This ETF tracks the S&P Technology Select Sector Index.  It holds 73 publicly traded companies that do business as regional banks or thrifts.

The top performing technology ETF this year is the Guggenheim S&P 500 Equal Weight Technology ETF (RYT). 

At a recent price of $70.22, RYT is up 28% this year.  It is outperforming XLK by more than 15% and the S&P 500 by 7%. 

Despite the outperformance, RYT has only a fraction of the assets XLK holds.  It currently has $254 million in assets under management. 

The reason for the outperformance is easy to see.  RYT tracks an index that weights each of the 67 stocks equally.  In other words, it doesn’t have the large holdings of the mega-cap stocks that are holding XLK back.

The slightly more complex weighting system requires it to be rebalanced periodically, and as a result, XLK carries a higher expense ratio of 0.5%.

The annual dividend yield of 0.95% is also less than XLK.    

But if it’s dividends you’re looking for, you should take a look at the First Trust NASDAQ Technology Dividend Index Fund (TDIV). At a recent price of $22.75, it has a dividend yield approaching 3%.   

What’s more, TDIV’s 20% year-to-date gain is outperforming XLK.  It’s also the smallest of the three ETFs with less than $200 million in assets under management.

TDIV tracks the NASDAQ Technology Dividend Index.  In order to be included in this index, a company must have a market cap of $500 million, have a dividend yield of 0.5%, and not decreased their dividend in the last 12 months. 

The index is evaluated and rebalanced in March and September of every year.  80% of the fund is invested in stocks classified as technology and 20% is invested in telecom stocks. 

Needless to say, this indexing method is a bit more complicated and comes with an expense ratio of 0.5%.  That’s in line with RYT but higher than XLK. 

Here’s the bottom line…

XLK, RYT, and TDIV all have different approaches to investing in technology.  XLK is the most popular ETF with a massive $11.7 billion in assets, but it’s being outperformed by the much smaller RYT and TDIV.

This is a perfect example of why you need to check under the hood of an ETF to see what it owns and how it’s performing before deciding which ETF to buy. 

Good Investing,

Corey Williams

Tags: , , ,

Category: ETFs, Sector ETFs

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets three times a week. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

Comments are closed.