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Should You Invest in the Technology Select Sector SPDR ETF (XLK)?

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If you're interested in broad exposure to the Technology - Broad segment of the equity market, look no further than the Technology Select Sector SPDR ETF (XLK - Free Report) , a passively managed exchange traded fund launched on 12/16/1998.

An increasingly popular option among retail and institutional investors, passively managed ETFs offer low costs, transparency, flexibility, and tax efficiency; they are also excellent vehicles for long term investors.

Investor-friendly, sector ETFs provide many options to gain low risk and diversified exposure to a broad group of companies in particular sectors. Technology - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 8, placing it in top 50%.

Index Details

The fund is sponsored by State Street Global Advisors. It has amassed assets over $51.38 billion, making it the largest ETF attempting to match the performance of the Technology - Broad segment of the equity market. XLK seeks to match the performance of the Technology Select Sector Index before fees and expenses.

The Technology Select Sector Index includes companies from the following industries: computers & peripherals; software; diversified telecommunication services; communications equipment; semiconductor & semiconductor equipment; internet software & services; IT services; wireless telecommunication services; electronic equipment & instruments; and office electronics.

Costs

Expense ratios are an important factor in the return of an ETF and in the long term, cheaper funds can significantly outperform their more expensive counterparts, other things remaining the same.

Annual operating expenses for this ETF are 0.10%, making it one of the least expensive products in the space.

It has a 12-month trailing dividend yield of 0.77%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Information Technology sector--about 99.70% of the portfolio.

Looking at individual holdings, Microsoft Corporation (MSFT - Free Report) accounts for about 23.38% of total assets, followed by Apple Inc. (AAPL - Free Report) and Nvidia Corporation (NVDA - Free Report) .

The top 10 holdings account for about 66.85% of total assets under management.

Performance and Risk

Year-to-date, the Technology Select Sector SPDR ETF has added roughly 42.18% so far, and is up about 37.78% over the last 12 months (as of 07/14/2023). XLK has traded between $116.56 and $176.25 in this past 52-week period.

The ETF has a beta of 1.12 and standard deviation of 25.52% for the trailing three-year period, making it a medium risk choice in the space. With about 69 holdings, it effectively diversifies company-specific risk.

Alternatives

Technology Select Sector SPDR ETF holds a Zacks ETF Rank of 1 (Strong Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, XLK is an excellent option for investors seeking exposure to the Technology ETFs segment of the market. There are other additional ETFs in the space that investors could consider as well.

IShares U.S. Technology ETF (IYW - Free Report) tracks Dow Jones U.S. Technology Index and the Vanguard Information Technology ETF (VGT - Free Report) tracks MSCI US Investable Market Information Technology 25/50 Index. IShares U.S. Technology ETF has $13.14 billion in assets, Vanguard Information Technology ETF has $53.75 billion. IYW has an expense ratio of 0.39% and VGT charges 0.10%.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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