XLK Technology Select Sector

Technology giant Apple (AAPL) is leading the recent upsurge in the broad sector. The company is thriving on a slew of good news that promises growth, and the stock has again become an investor favorite.
 
Shares of AAPL enjoyed a strong rally over the past few months, surging nearly 50% from its low in April. In fact, the stock jumped nearly 19% since the start of the fourth quarter and is heading quickly to reach or break its all-time high of $705.07. This is even more likely given the robust outlook and start of holiday season sales.
 
Upbeat Outlook
 
Apple surpassed our estimates on both earnings and revenues in the third quarter buoyed by strong iPhone sales. Apple sold 33.8 million iPhones in the quarter, up 26% year over year (read: 3 Tech ETFs to Watch Following the Apple Earnings Beat).
 
Thanks to iPads and iPhones, new gadgets, a refreshed product line-up and strategic acquisitions, the company’s outlook appears bright compared to other companies in the sector. The recent launch of music streaming service iRadio is helping Apple to counter strong competition from the domestic market leader Pandora Media (P) as well as other providers such as Sirius XM (SIRI), Spotify, Radio Inc. and Google (GOOG).
 
Apart from these, the company finally reached a deal with the world's largest carrier, China Mobile (CHL), which is expected to provide access to over 700 million customers in the second-largest economy in the world. This deal would be a big boon to the company’s top line growth.
 
Holiday Season Drive Stock Higher
 
Most surprisingly, Apple outpaced Dell and has become the top brand for desktops this holiday season for the first time. The company also gained the top position for tablets, laptops, smartphones, home networking routers, MP3 players, and streaming media devices (Apple TV) according to the latest report from Parks Associates.
 
The demand for Apple products is growing by leaps and bounds, suggesting increased consumer confidence in the company’s porduct lineup. In particular, the CEO of the company – Tim Cook – expects Apple to have an “iPad Christmas” given strong sales in the first weekend of the holiday season (read: 3 ETFs For This Holiday Season).
 
As per Localytics, a mobile app marketing and analytics firm, sales of Apple iPad Air climbed 51% from the prior weekend during the Black Friday weekend while iPad Minis and iPhone 5c grew 26%.
 
Impressed by these robust data points, many analysts revised their target price upward, spreading optimism in the stock and left investors feeling bullish on the stock’s future.
 
ETFs to Consider
 
Given huge optimism, investors should consider the following three ETFs that have the largest allocation to this industry giant and have returns that are directly related to the rise and fall of Apple (see: all the Technology ETFs here):
 
iShares Dow Jones US Technology ETF (IYW)
 
This ETF tracks the Dow Jones US Technology Index, giving investors exposure to 142 stocks in the broad technology space. The fund has amassed over $2.9 billion in AUM while charging 45 bps in fees and expense. Volume is moderate as it exchanges nearly 320,000 shares in hand a day.
 
Apple occupies the top position in the basket with 18.17% of assets. The product is heavily skewed toward the technology hardware and equipment segment, as these make up for more than half of the portfolio. Software and computer services take the remaining portion in the basket.
 
The fund added over 8% quarter-to-date and has a Zacks ETF Rank of 2 or ‘Buy’ with a ‘High’ risk outlook.
 
Select Sector SPDR Technology ETF (XLK)
 
The most popular technology ETF on the market, XLK follows the Technology Select Sector Index. This fund manages about $12.7 billion in assets and trades in heavy volume of roughly 7.2 million. The ETF charges 18 bps in fees per year from investors.
 
In total, the fund holds about 74 securities in its basket. Of these firms, AAPL takes the first spot, making up roughly 15.65% of the assets. In terms of industry exposure, the fund is widely spread across computer & peripherals, software, IT services, Internet software & services and diversified telecom services that make up for double-digit allocation (read: Top Ranked Internet ETF in Focus: FDN).
 
XLK also returned over 8% since the start of the fourth quarter and has a Zacks ETF Rank of 3 or ‘Hold’ with a ‘Medium’ risk outlook.
 
Vanguard Information Technology ETF (VGT)
 
This fund provides exposure to a large basket of 411 technology stocks with AUM of $4.2 billion. This is done by tracking the MSCI US Investable Market Information Technology 25/50 Index. The ETF has a 0.14% expense ratio while volume is moderate.
 
Again here, AAPL is the top firm with 14.1% allocation while others hold less than 8.1% of assets. This suggests that the performance of the fund is highly dependent on Apple’s returns. From a sector perspective, Internet software & services and computer hardware take the largest share with 16% each (read: 3 Internet ETFs Leading the Tech World Higher).
 
VGT gained over 7% quarter-to-date. The fund has a Zacks ETF Rank of 1 or ‘Strong Buy’ with a ‘Low’ risk outlook, and could thus be a solid pick for investors seeking to play the tech sector.
 

 
Bottom Line
 
These three Apple ETFs have clearly outpaced broad market fund (SPY) by a wide margin and the trend is likely to continue given the strong holiday sales for Apple, and the effect that this might have on other names in the space as well.
 
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APPLE INC (AAPL): Free Stock Analysis Report
 
ISHARS-US TECH (IYW): ETF Research Reports
 
SPDR-SP 500 TR (SPY): ETF Research Reports
 
VIPERS-INFO TEC (VGT): ETF Research Reports
 
SPDR-TECH SELS (XLK): ETF Research Reports
 
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