The Top Tech ETF of The Week

By Markets Fool.com

SOURCE: FLICKR USERGOTCREDIT.

Continue Reading Below

The proliferation of ETFs has arguably been the best trend for ordinary retail investors during the past decade. Because they are composed of many different stock holdings, ETFs offer investors instant diversification, much like mutual funds. However, ETFs generally offer this diversification with lower fees, more price transparency, and better tax efficiency.

However, you should still learn about an ETF and the niche it represents before you buy a share of it. This is especially important in the fast-moving technology field.

With that in mind, let's look at the top non-levered, non-inverse tech-sector ETF this week. With more than $200 million in assets under management and sufficient trading volume, this ETF outperformed the Nasdaq Composite's 7.3% loss for the trading week ended Jan. 8.

A horrible start to the year spared nobody
It's been noted that all risk assets become highly correlated during correction cycles. In layman's terms, when the market is in a broad sell-off, it's hard to find stocks that are swimming against the tide. Anecdotally, this week appears to hold true to this axiom, as no large-asset ETF finished up on the week. As a result of turbulence in China, investors sold off stocks en masse to put their money in Treasuries and other lower-risk assets in the first trading week of 2016.

On a comparative basis, the best-performing technology ETF was First Trust's NASDAQ Technology Dividend ETF , which reported a narrower 6.3% loss during the same period. And that makes sense, as the fund investments are in what's historically known as "old tech" -- cash-rich investments with dependable but mature primarily business lines.

Continue Reading Below

The top holdings in the ETF include Microsoft , IBM , Cisco Systems, Intel, and Apple. These five companies comprise roughly 40% of the index. As a result of these holdings, the ETF is relatively inexpensive from a total market standpoint, with a price-to-earnings ratio of 15 versus the S&P 500's valuation of 20. On a yield basis, the ETF boasts a current yield of 2.7% versus the S&P 500's yield of 2.1%.

What worked for First Trust's Technology Dividend ETF?
On a comparative basis, First Trust's Technology Dividend ETF outperformed on the basis of two of the older tech names. Microsoft finished in the green on Friday, as The Verge reported that the company will make its own SIM card. This move would bolster Microsoft's mobile ambitions, as it will allow users to connect to mobile networks without a contract. An "outperform" rating from BMO Capital Markets in its initiated coverage allowed the company to report a narrower weekly loss than the greater Nasdaq of 5.6%.

Meanwhile, IBM also had a better week than the greater Nasdaq. Positive news relating to the company's much-hyped cognitive computing Watson platform helped offset market malaise. During the Consumer Electronics Show, the company announced partnerships with Medtronicfor diabetes management and Under Armour for fitness-based data collection, according to Investor's Business Daily. Overall, the company reported a narrower loss of 4.5%.

It's been a tough start to the stock market in 2016. If this risk-off mentality continues, value-based stocks with dependable businesses and distributable income should hold up better than zero-yielding cyclical industries. If you're in the market for technology exposure with income, check out First Trust's Technology Dividend ETF to see if it fits your investing profile.

The article The Top Tech ETF of The Week originally appeared on Fool.com.

Jamal Carnette owns shares of Apple. The Motley Fool owns shares of and recommends Apple and Under Armour. The Motley Fool owns shares of Medtronic. The Motley Fool recommends Cisco Systems and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.