(Investor's Business Daily) This month's new ETF Leaders screen still finds a fair share of technology sector funds, including the largest of them all, Technology Select Sector SPDR (XLK).
The $23.3 billion fund is up more than 36% this year, beating the Nasdaq 100, which itself is more than 44% invested in the technology sector. During the last week of October, shares cleared the 82.88 buy point of a flat base and they remain in buy range.
Moreover, the ETF's relative strength line is near new highs, reflecting outperformance vs. the broad market.
Not only is it the largest tech ETF by assets, but Technology Select Sector SPDR also outperformed other major rivals through the end of October. According to ETFdb.com, Technology Select Sector climbed 36.33% compared with 35.38% for Vanguard Information Technology (VGT) and 33.45% for iShares U.S. Technology (IYW). The Vanguard and iShares ETFs also are in buy areas from breakouts in the past week.
Technology Select Sector SPDR has nearly 70 holdings, but one stock delivers much of its strength. Almost 19% of assets are invested in Apple (AAPL), one of the best-performing techs since its breakout from a flat base on Sept. 11. Shares are up about 14% from that entry and made new highs Friday.
Why Apple, Microsoft Are Rising
Apple is rallying after rolling out new iPhones, Apple Watches and other products. The company's results for the September-ended quarter were solid, and management's outlook was bullish.
Microsoft (MSFT) is the largest holding, with 19.4% of the fund. The stock is also trading at new highs, although it is up just 1% from the 142.47 buy point of last Monday's breakout. Microsoft also beat profit estimates and hit a new high after winning a huge Pentagon cloud contract.
All other holdings individually account for less than 6% of the ETF's assets, which leaves Microsoft and Apple with extraordinary influence on the fund's performance.
Software companies account for almost 30% of assets, the biggest chunk of the portfolio but also one of the lagging parts of the tech sector since the Oct. 3 market lows. IShares Expanded Tech-Software (IGV), a popular proxy for the software industry, is up 6% since then.
By comparison, iShares PHLX Semiconductor (SOXX) is up 11%. It's fair to say that, aside from Apple, chip stocks have contributed substantially to XLK's performance in the past several weeks. Intel(INTC) and Nvidia (NVDA), two top-10 holdings, shot up 9.7% and 15.5% in October, respectively.
The technology sector is vulnerable to the U.S.-China trade war, especially semiconductors. Also, third-quarter earnings in the sector have been mixed.
Earnings per share among S&P 500 tech companies are down 7.2% as of an Oct. 25 FactSet report. But technology is beating Q3 profit expectations by more than any other sector, and 85% of companies are beating earnings expectations.
