Technology Stocks Are Baaack

After falling out of favor along with other growth stocks at the start of a volatile year, technology sector-related exchange traded funds have outperformed in recent months.

Technology companies have regained their footing in recent months as volatility dissipated and investors renewed their focus on a beaten up growth category, with the Nasdaq Composite and the PowerShares QQQ (NASDAQ:QQQ), which tracks the tech heavy Nasdaq-100 Index, both making new highs.

Over the past three months, QQQ increased 11.3%, whereas the SPDR S&P 500 (NYSE:SPY) gained 4.9% and SPDR Dow Jones Industrial Average ETF (NYSE:DIA) rose 4.1%.

Ever since the so-called Brexit vote to leave the European Union rocked global markets, technology stocks have led the market rebound. More recently, after the Federal Reserve's decision to leave rates unchanged, broad markets pushed forward with the Nasdaq hitting a new record high Thursday.

Looking ahead, growing optimism for the upcoming earnings season is also fueling the rally in tech as many market observers anticipate a turnaround in corporate profits. Historically, after a profit falloff, the technology sector has been among the best areas in a rebound.

"The only sector that has recorded an increase in expected earnings growth since the start of the quarter (due to upward revisions to earnings estimates) is the information technology sector," according to FactSet.

Overall, 33 of the 66 companies in the info tech sector have experienced a rise in their mean earnings-per-share estimates to date.

Investors seeking targeted exposure to the technology space have a number of broad sector plays at their disposal. For starters, the Technology Select Sector SPDR (NYSEA:XLK) has been a popular option to target technology names in the S&P 500. Alternatively, the Vanguard Information Technology ETF (NYSE:VGT) is a cost-efficient avenue for investors looking for technology exposure as well. Large institutional traders may enjoy the robust liquidity found in XLK, but long-term investors who are less concerned about day-to-date, bid-ask spreads may like the cheaper 0.10% expense ratio found in VGT, compared to XLK's 0.14% expense ratio.

Both XLK and VGT track market capitalization-weighted indices, so the top components include prominent names like Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Facebook (NASDAQ:FB).

Among the best performing tech-related ETFs so far this year, the VanEck Vectors Semiconductor ETF (NYSE:SMH) increased 27.2% and Global X Social Media Index ETF (NASDAQ:SOCL) advanced 25.2%.

SMH targets the semiconductor sub-sector, with large positions in well-known names like Intel (NASDAQ:INTC) 13.4%, Taiwan Semiconductor Manufacturing (NYSE:TSM) 12.7% and Qualcomm (NASDAQ:QCOM) 7.7%. The ETF also includes some overseas holdings, including 12.7% Taiwan, 8.5% Netherlands, 6.0% Japan and 5.1% Singapore, along with 66.5% U.S.

SOCL targets companies involved in the social media game. While the social media ETF includes some known social media names like Facebook (NASDAQ:FB) 9.6% and Twitter (NYSE:TWTR) 8.9%, SOCL also includes internet and media names that investors may not think of, such as Tencent 10.1%, Alphabet (NASDAQ:GOOG) 4.6% and Yahoo (NASDAQ:YHOO) 4.8%. The fund also includes a significant international exposure, including 23.5% China, 9.8% Japan, 7.6% Russia, 4.2% Germany and 1.0% Taiwan, along with 53.8% U.S.

Full disclosure: Tom Lydon’s clients own shares of SPY.

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