/How to Bet on Upside for Hot Tech ETFs

How to Bet on Upside for Hot Tech ETFs

This article was originally published on ETFTrends.com.

The Technology Select Sector SPDR Fund (NYSEArca: XLK), the largest tech-related exchange traded fund, is up 12.40% year-to-date. That after technology was the best-performing sector in the S&P 500 last year.

Even with those superlatives, investors appear comfortable betting on more upside for the S&P 500’s largest sector weight. XLK includes companies from technology hardware, storage, and peripherals; software; diversified telecommunication services; communications equipment; semiconductors and semiconductor equipment; internet software and services; IT services; electronic equipment, instruments and components; and wireless telecommunication services.

“It’s a close race this year between Wall Street’s best-performing sectors: technology and consumer discretionary. Craig Johnson, chief market technician at Piper Jaffray, says one sector takes the lead,” reports CNBC.

Some Value

XLK and the PowerShares QQQ (NasdaqGM: QQQ), which tracks the tech heavy Nasdaq-100 Index, are usually viewed as growth plays.

That also implies that the technology sector, the largest sector weight in the S&P 500, can trade at valuations that are expensive relative to the broader market. However, tech’s valuations are not as stretched as some investors may think and the sector’s earnings are growing.

Related: Schwab CEO Walt Bettinger: Tech Solutions Remain ‘All About the Client’

The sector had one of the most positive first quarter outcomes on the basis of business cycle, fundamentals, relative valuations and relative strength.

“”Looking at the absolute price action of the XLK, we just broke out to new highs,” said Johnson in an interview with CNBC. “It looks like we’ve got a measured objective that could take us up toward $80 so that was where we’d be putting our money to work and we remain overweight this sector at this point.”

XLK closed just under $72 on Monday. Yesterday, five technology ETFs hit record highs. While the consumer discretionary sector is home to hot stocks such as Amazon.com (NASDAQ: AMZN) and Netflix, Inc. (NASDAQ: NFLX), tech has outperformed that sector in significant fashion over the past five years. Year-to-date, XLK is beating the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) by about 100 basis points.

Year-to-date, investors have added nearly $890 million to XLK while XLY has seen outflows of $185 million.

For more information on the tech sector, visit our technology category.

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