Among the sector SPDR exchange-traded funds, on a year-to-date basis, the Energy Select Sector SPDR (ETF) (XLE) is easily the best performer with a gain of 21.3 percent. Some other popular sector ETFs are delivering for investors while others are dithering.
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Looking At Sector ETFs
For example, the Consumer Staples Select Sect. SPDR (ETF) (XLP), the largest consumer staples ETF, started this year on a torrid pace as investors flocked to defensive, low beta sectors with sturdy dividend yields.
Due to speculation that defensive sectors, namely staples and utilities are overvalued even relative to their historical norms, and due to increased wagers that the Federal Reserve could raise interests at least once before the end of this year, some of the bloom has come off XLP's rose. The ETF is up just 5.5 percent year-to-date after spending much of the first half of the year as the second-best SPDR.
Conversely, the Technology SPDR (ETF) (XLK) has been a pleasant surprise this year, rising 13.5 percent in what is one of the best showings among the sector SPDR ETFs excluding XLE.
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Investors has historically been able to obtain a simple 'Free Lunch' portfolio by combining exposure to the information technology and consumer staples sectors, according to Sam Stovall, Equity Strategist for CFRA. While this approach generated strong risk-adjusted returns since for the S&P 500 sectors, S&P 500 equal weight sectors and S&P Global 1200 sectors, the exposure ETF investors can obtain with these three approaches is distinct, said CFRA Research in a note out Monday.
XLK and rival cap-weighted technology ETFs are popular with investors due in part to the fact that these funds are indirect proxies on Apple Inc. (AAPL) and other mega-cap tech names. For example, XLK currently allocates nearly 14 percent of its weight to Apple.
Another Approach: RYT
However, different approaches to tech ETFs work as well. Just look at the Guggenheim Invest S&P 500 Eql Wght Tech (RYT), which is up 15.4 percent this year. RYT was one of 27 ETFs hitting all-time highs on Monday.
Relative to the Guggenheim S&P 500 Equal Weight Technology ETF (RYT) and despite holdings the same stocks just in different weighted, XLK has different industry exposure. For example, XLK has less exposure to semiconductors & semiconductor equipment companies such as Microchip Technology (MCHP) and more exposure to technology hardware, storage & peripherals companies such as Apple, added CFRA.
RYT charges 0.4 percent per year while XLK charges 0.14 percent.
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