The WisdomTree Europe Hedged Equity Fund (HEDJ) is an exchange-traded fund that provides investors w...
Taking Shelter in Tech
03/08/2016 9:00 am EST
Tech investors can take shelter in large caps, which tend to fluctuate less than smaller ones and don’t usually fall as far in down markets. They’re also tough to beat over the long haul, asserts Tim Begany in Personal Finance.
Technology Select Sector SPDR (XLK) handled the stock market’s awful start to the year as expected, dropping far less than most peers and holding up better than the broader market.
XLK outperforms in the long run, too, gaining an annualized 11.6% over the past five years, compared with an 8.1% rate of return for its peer group.
The fund’s 5 and 10-year track records beat 90% and 83% of peers, respectively. It’s also a surprisingly good income source for a tech-oriented investment, as we’ll explain shortly.
XLK eclipses rivals by mimicking the Technology Select Sector Index, which holds all the technology stocks in the S&P 500, currently 74.
With its large-cap tilt, the fund shows 20% less volatility than the peer group average. XLK is only about 5% more volatile than the S&P 500.
Like its bogey, XLK is cap-weighted; meaning stocks are held in proportion to their market value. So the largest companies always get the biggest percentage stakes in the fund.
The top holding, with a 13.4% stake, is Apple (AAPL). Despite stumbling badly since last May, Apple’s stock is still up well over 5,000% since it was first added to XLK in 2002.
Tech funds aren’t usually the greatest income sources but XLK’s safe and steady approach ensures it will always contain plenty of reliable dividend payers.
Such stocks enabled fund payouts to rise more than fourfold over the past decade to the current 77 cents a share. XLK yields 1.9%, not far off the S&P 500’s 2.2% yield.
XLK’s expense ratio is only 0.14%, making the fund an extremely cost-effective choice for investors who prefer a more conservative entrée into technology.
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