The technology sector is the best-performing group in the S&P 500, a theme that is bolstering the case for plenty of well-known exchange-traded funds (ETFs). With large- and mega-cap technology names such as Apple Inc. (AAPL) and Facebook, Inc. (FB) driving the sector higher, ETFs that weight the sector by market capitalization are benefiting.
Sector ETFs added $21 billion in new assets during the first seven months of 2017, a small slice of the $191 billion added by U.S.-listed equity ETFs over that stretch, according to CFRA Research. However, technology ETFs, including the Technology Select Sector SPDR (XLK) and the Fidelity MSCI Information Technology Index ETF (FTEC), have been steadily adding assets this year. XLK, the largest technology ETF by assets and the go-to tech fund among many professional traders, has seen year-to-date inflows of $288.1 million. FTEC, the technology ETF with the smallest annual fee, has added nearly $295 million in new assets this year. (See also: Big Money Flows Into Big Tech ETFs.)
"CFRA thinks investors have sought out diversified exposure to 2017's large-cap winners; Facebook, Apple and Alphabet Inc. (GOOG) have sound fundamentals and appealing valuations, and all are among the 67 CFRA buy/strong buy recommendations in the U.S. tech sector from a universe of 193 stocks (35% of our STARS coverage)," said CFRA Director of ETF and Mutual Fund Research Todd Rosenbluth.
FTEC, the Fidelity technology ETF, is not yet four years old, making it one of the youngest members of the cap-weighted tech ETF fray. Despite its late arrival to the sector ETF game, Fidelity has found success due in large part to its willingness to compete with rivals on fees. FTEC "launched in October 2013 into a crowded market-cap weighted sector fund universe that included diversified products from iShares, SSGA, Vanguard and others," said Rosenbluth. "Nonetheless, FTEC's asset base has climbed to over $1 billion, aided in part by its miniscule 0.08% expense ratio. FTEC's holdings include Apple, Facebook and Alphabet. FTEC earns a top ranking from CFRA due to our holdings-level analysis and for its modest cost factors." (See also: A Cost-Efficient ETF for Apple Investors.)
FTEC and XLK are up an average of 21.5% year to date, but that does not mean the sector's upside potential from here is limited, nor does it mean tech is as expensive as some investors believe it to be. When "the tech sector has beaten the market by more than 10% in any six-month period, it has outperformed over the next nine months 58% of the time," notes Fidelity sector strategist Denise Chisholm, according to CFRA. (See also: Why Big Tech Stocks Have 9% Upside.)