Nasdaq-related ETFs are outperforming the S&P, and investors have an array of choices among hot tech funds.
Nasdaq-related ETFs outperformed the S&P 500 Index last year during its heady surge and are currently outperforming the S&P year-to-date, giving investors options even at a time when the index is flirting with record highs.
Going forward, ETFs invested in the tech sector—specifically information technology companies—are set to rise higher. Still, investors would be wise to look closely at different tech ETFs. Specifically, although broad-based funds focused on larger companies are besting the S&P, they’re returning less than funds focused on small- and midcap tech names.
“We have cyclical bias, and info tech is one of the favored sectors for us,” said Todd Rosenbluth, director of ETF/mutual fund research at S&P Capital IQ. His firm’s cherry-picking of the tech sector comes after the S&P 500 gained more than 30 percent in 2013 and reached new highs earlier this month.
“We think IT sector companies have very strong balance sheets that increasingly will be used to pursue value-added R&D, M&A, buybacks, dividends and debt retirement. Further, from a price-to-earnings growth basis, the sector looks undervalued to us,” he added.
Chart courtesy of StockCharts.com
IT is the biggest sector holding for the $45 billion PowerShares QQQ ETF (QQQ | A-55) at nearly 57 percent.
QQQ, which tracks a modified market-cap-weighted index of 100 Nasdaq-listed stocks, has Apple, Google and Microsoft as its top holdings, in that order. Apple makes up 11.6 percent of the portfolio, with Google and Microsoft making up 8.0 percent and 7.8 percent, respectively.
More generally, the fund has a majority of its weighting toward large-cap growth stocks.
The fund is up 2.1 percent year-to-date after returning 36.6 percent last year. It has an annual expense ratio of 0.20 percent, or $20 for every $10,000 invested.