XLK is an SPDR ETF that is focused on information technology and allocates its capital to segments such as hardware, storage, software, communications equipment, semiconductors and semiconductor equipment, IT services.
XLK has drastically outperformed the market as its return over the past five years has been 253.40% compared to 114.36% from SPY.
9/10 of XLK’s top ten holdings have outperformed SPY over the past ten years which has attributed to XLK’s oversized returns.
Many Wall Street firms are projecting a strong close to 2021 and Goldman Sachs is projecting that the S&P 500 will exceed 5,000 in 2022. If this occurs, I expect that XLK will outperform SPY again.
Nastassia Samal/iStock via Getty Images Recently many strategists from Wall Street’s top firms increased their 2021 S&P 500 end of year targets , with some of the bullish being 4,800 out of BMO, 4,600 from Barclays, 4,640 from CFRA and UBS, and 4,700 from Oppenheimer and GS. Goldman Sachs ( GS ) went a step further and raised its S&P 500 price target by 9% in 2022, as they now see it climbing to 5,100. The markets continue to rip higher and while some investors continue to look for pullbacks or a correction, nothing seems to create an impediment to the market’s upward trend. Regardless of the economic aspects that bears try to utilize as logic for a correction such as inflation, investors are still piling in and the markets continue to appreciate.
With many of the big firms on Wall Street predicting year-end rallies and even another positive year in 2022, the question becomes how do you capitalize on these trends. Many investors have done very well just parking capital into S&P index funds such as the SPDR S&P 500 Trust ( SPY ). Indexing has become a cornerstone to many investment strategies, and the data indicates that the S&P has returned a historical annual average of around 10% from 1929 – 2019. Suppose the market is going to rip higher throughout the remainder of 2021 and into 2022. In that case, I believe technology will continue to be one of the biggest beneficiaries and continue to play a significant role in the market’s upward trend. An interesting investment is the Technology Select Sector SPDR ETF ( XLK ) as it consolidates its investment mix into companies that provide internet software and services, IT consulting services, semiconductor equipment, computers, and peripherals. If the markets are going to rip higher, why not stick with what’s been working and delivering for investors? (Source: CNBC) The Technology Select Sector SPDR ETF ( XLK ) compared to the SPDR S&P 500 Trust ( SPY )
While SPY is heavily invested in technology companies throughout its top ten holdings only 28.39% of the fund is allocated to technology investments. By investing in SPY and owning one share, you’re gaining an equity position in the 505 largest companies in America. SPY is comprised of 11 sectors and diversifies investors across America’s business landscape. XLK on the other hand is 100% focused on IT, and the fund only diversifies throughout the IT spectrum. Its largest focus is software at 35.04% of the fund’s allocation, followed by semiconductors and semiconductor equipment at 22.08%. Technology companies have been the largest winners throughout the bull market, and many software and semiconductor companies have decimated the S&P’s annual return.
I like using SPY to track the S&P because it’s possibly the most well-known S&P 500 ETF. SPY has been a great investment over the years as it’s generated a 114.36% return for its investors over the past five years. I don’t think anyone would complain if you told them five years ago if you just put your money here, it will double in less than five years, and you don’t have to do anything else. While Microsoft ( MSFT ) and Apple ( AAPL ) are the largest holdings in both funds, XLK also has market standouts like NVIDIA ( NVDA ), Adobe ( ADBE ), and Salesforce ( CRM ) in its top ten holdings. By having such a large exposure to software and semiconductors, the XLK has delivered a 253.40% over the past five years compared to the 114.36% SPY delivered. If an investor would have been happy with doubling their money, how about if someone told you that you would double that amount again in the same time period?
The XLK has generated a 253.4% return without having to make an additional trade over a five-year period. Technology […]