A Hidden Gem Among Technology ETFs


With the Nasdaq Composite down nearly 1 percent, perhaps this is not the time to be talking technology ETFs. Then again, it might be a good time to start evaluating technology exchange traded funds that merit buy-on-the-dip consideration.

The SPDR Morgan Stanley Technology ETF (NYSE:MTK) is an ETF to consider. Often overlooked relative to more prosaic technology ETFs, such as the Technology Select Sector SPDR (NYSE:XLK) and the PowerShares QQQ (NASDAQ:QQQ), MTK is by no means small. MTK, which celebrates its 15th anniversary in September, has quietly amassed $430.5 million in assets under management.

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What makes that total truly impressive is that at a time when investors are selling out of traditional tech ETFs, MTK has added over $182 million in new assets this year. Thats over 42 percent of the ETFs current assets under management tally.

A look at MTKs holdings belies the ETFs overlooked status. Netflix, Inc.(NASDAQ:NFLX) is MTKs largest holding at a weight of just over 6 percent. Said another way, MTK is home to one of the largest weights to Netflix of any ETF. The large-by-comparison weight to Netflix is the tip of the iceberg when it comes to MTKs departure from the tech ETF norm.

The ETF also features a 4.7 percent weight to Amazon.com, Inc.(NASDAQ:AMZN). Excluding dedicated Internet and consumer discretionary funds, MTKs Amazon exposure is also high in the world of ETFs. Throw in an almost 3.3 percent weight to Facebook Inc(NASDAQ:FB) and a combined 6.6 percent weight to two classes of Google Inc(NASDAQ:GOOG), and it becomes obvious why MTK is a quiet leader among tech ETFs.

MTK is up 6.3 percent over the past six months, a showing that is more than double the average return of XLK and QQQ over the same period. MTK has been able to trump its more heralded rivals without the benefit of large weights to Dow components Apple Inc.(NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT). Those stocks combine for more than a quarter of XLK and QQQ, but just 5.7 percent of MTKs weight, according to issuer data.

MTKs tilt towards some of the Internet and tech spaces momentum might imply investors will be pay up on valuation to get involved with the fund. However, MTKs price-to-earnings ratio of about 20.9 is only modestly higher than QQQs multiple of 20.3.

Plus, MTK is home to some of the most cash-rich companies in Corporate America. Based on end-of-2014 stockpiles, four of the five most cash-rich U.S. companies are current MTK holdings.

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