This Tech ETF Beats the Competition When Earnings Roll AroundBy
Here’s one way to play technology earnings using exchange-traded funds. This year, the capitalization-weighted Technology Select Sector SPDR Fund (XLK) has lagged its equal-weighted counterpart, the Guggenheim S&P 500 Equal Weight Technology ETF (RYT). But not during earnings season. Why? Because Apple Inc., Microsoft Corp., Facebook Inc. and Google parent Alphabet Inc. make up almost 40 percent of the cap-weighted fund. So when those tech giants beat their earnings estimates, XLK outperforms RYT, where the same companies make up less than 6 percent of the portfolio.
Still, that doesn’t mean investors should bank on large-cap tech names outside of earnings season, according to Paul Nolte, a portfolio manager at Kingsview Asset Management in Chicago.
“Because technology is so broad, you have to look outside of the biggest names,” he said by phone. “And most of the growth opportunity within technology is not really in the Googles and the Apples because their market cap is so huge. You’re going to get better bang for your buck in mid-cap or smaller companies.”