On the surface, it would appear to be a disappointing year for technology sector ETFs. The Technology Select Sector SPDR (NYSE: SPY) by 670 basis points.

Of the nine sector SPDRs ETFs, XLK ranks seventh on a year-to-date basis and is being kept out of the last place by the Materials Select Sector SPDR (NYSE: has wilted in the face of rising interest rates.

What is disappointing about the performance of the cap-weighted, large cap-focused XLK is that when stripping out AT&T (NYSE: VZ) to focus on the pure tech names among the ETF's top-10 holdings, five of the remaining eight names have traded higher this year. In fact, XLK is not even the best U.S. technology sector ETF issued by State Street Global Advisors. That honor goes to the SPDR Morgan Stanley Technology ETF (NYSE: MTK), which has returned 15.3 percent this year with some help from Facebook (NASDAQ: FB) and Priceline.com (NASDAQ: PCLN).

Related: The Race To $1,000 ETF You've Never Heard Of.

Still, it is possible to find market-beating U.S.-focused tech ETFs. Even when excluding the PowerShares S&P SmallCap Information Technology Portfolio (NASDAQ: PSCT), has been a stellar performer in its own right, investors could have done this year with tech ETFs this year.

The right tech ETFs that is. Some of this year's top tech ETFs share an important trait in common. These funds offer investors exposure to the increasingly prominent theme of fundamental weighting methodologies.

Take the PowerShares Dynamic Technology Sector Portfolio (NYSE: PTF) as one example. PTF is weighted by factors including rice momentum, earnings momentum, quality, management action, and value. None of the ETF's 61 holdings account for more than 2.82 percent of the fund's weight. Apple (NASDAQ: AAPL) is not a member of PTF's lineup, which is a good thing given that the stock has traded lower this year.

However, PTF has gained 14.4 percent this year while also excluding Google (NASDAQ: GOOG) and Microsoft (NASDAQ: MSFT), just to name a pair of large-cap tech stocks that have performed well in 2013.

Speaking of Apple, well-documented has been the stock's impact on various ETFs and how funds with excessive to the stock are vulnerable when Apple falls. Equal-weight ETFs avoid that conundrum.

The First Trust NASDAQ-100-Technology Sector Index Fund (NASDAQ: QTEC) and the Guggenheim S&P 500 Equal Weight Technology ETF (NYSE: RYT) are up an average of 20.5 percent this year. Both funds feature scant allocations to Apple, but the same goes for their exposure to Google. RYT actually has a slightly larger weight to Yahoo (NASDAQ: YHOO) than it does Google. RYT is up 21.6 this year, meaning it has topped Google by 260 basis points.

The First Trust Technology AlphaDEX Fund (NYSE: FXL) also eschews cap-weighting in favor of a mix of growth and value factors, including price appreciation, sales to price and one year sales growth, book value to price, cash flow to price and return on assets.

Apple happens to be FXL's largest holding at 2.3 percent of the fund's weight. The 1.35 percent allocation to Google is well below the weights given to 3D Systems (NYSE: DDD), Groupon (NASDAQ: GRPN) and Yahoo, just to name a few. The result is an ETF up 19.6 this year.

Another thing these ETFs share in common is not none are particularly large, though three have over $100 million in assets under management. Combined, PTF, QTEC, RYT and FXL have about $707 million in AUM compared to $11.3 billion for XLK.

For more on ETFs, click here.

Disclosure: Author does not own any of the securities mentioned here.

Related Articles
  1. Budgeting

    The Honest Company Bundles Review: Are They Worth It?

    Learn more about The Honest Company and its bundle subscription services, which deliver discounted diapers, formula and other baby products to your doorstep.
  2. Products and Investments

    The One Thing Your Portfolio Must Always Have

    Portfolio diversification is essential in any situation, but especially so as the market finally returns to fundamentals.
  3. Budgeting

    Blue Apron Review: Is It Worth It?

    Read about one of the top meal-kit delivery services in the United States, and learn more about what it offers and how much it costs.
  4. Chart Advisor

    How Are You Trading The Breakdown In Growth Stocks? (VOOG, IWF)

    Based on the charts of these two ETFs, bearish traders will start turning their attention to growth stocks.
  5. Mutual Funds & ETFs

    Pimco’s Top Funds for Retirement Income

    Once you're living off the money you've saved for retirement, is it invested in the right assets? Here are some from PIMCO that may be good options.
  6. Chart Advisor

    Watch This ETF For Signs Of A Reversal (BCX)

    Trying to determine if the commodity markets are ready for a bounce? Take a look at the analysis of this ETF to find out if now is the time to buy.
  7. Mutual Funds & ETFs

    ETFs Can Be Safe Investments, If Used Correctly

    Learn about how ETFs can be a safe investment option if you know which funds to choose, including the basics of both indexed and leveraged ETFs.
  8. Mutual Funds & ETFs

    The Top 5 Large Cap Core ETFs for 2016 (VUG, SPLV)

    Look out for these five ETFs in 2016, and learn why investors should closely watch how the Federal Reserve moves heading into the new year.
  9. Economics

    India: Why it Might Pay to Be Bullish Right Now

    Many investors are bullish on India for all the right reasons. Does it present an investing opportunity?
  10. Investing Basics

    Building My Portfolio with BlackRock ETFs and Mutual Funds (ITOT, IXUS)

    Find out how to construct the ideal investment portfolio utilizing BlackRock's tools, resources and its popular low-cost exchange-traded funds (ETFs).
RELATED FAQS
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  3. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  4. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  5. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
  6. Can mutual fund expense ratios be negative?

    Mutual fund expense ratios cannot be negative. An expense ratio is the sum total of all fees charged by an asset management ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center