It has been a good year for the technology sector, the largest sector allocation in the S&P 500. The tech-heavy NASDAQ-100 Index is up 8.7 percent while the Technology SPDR (ETF) (NYSE: XLK), the largest technology exchange-traded fund, is higher by 16.5 percent.
PSI, Ahead Of The Rest
Semiconductor stocks have been big contributors toward the tech sector's upside this year, and that explains why the PowerShares Dynamic Semiconductors (ETF) (NYSE: PSI) is 2016's best-performing non-leveraged tech ETF with a gain of 46.4 percent.
PSI, which holds 30 stocks, is a smart or strategic beta ETF because its underlying index “is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including: price momentum, earnings momentum, quality, management action, and value,” according to PowerShares.
Robust mergers and acquisitions activity has been a significant theme for semiconductor stocks and ETFs like PSI. As of early November, there had been about 20 chip deals this year worth more than billion combined.
Holdings And Weight
While PSI does hold shares of Intel Corporation (NASDAQ: INTC) and other chip giants such as Texas Instruments Incorporated (NASDAQ: TXN), the ETF devotes 43 of its weight to large-cap stocks, which has proven to be an advantage at a time when smaller and mid-cap semiconductor names have been delivering some of the sector's best returns.
Over 22 percent of PSI's holdings are mid-cap chip makers and about 35 percent are small-cap names. However, PSI's exposure to smaller growth stocks does not drag the ETF's valuation to concerning levels.
For example, PSI sports a price-to-earnings ratio of 21.46 and a price-to-book ratio of 3.2. The comparable numbers on the NASDAQ-100 are 21.18 and 4.36.
Benzinga recently reported: Semiconductor companies largely announced a slight earnings beat for Q3 and projected in-line guidance following a string of disappointing growth outlooks, while Q4 seems to be tracking modestly ahead of expectations, Bluefin’s Paul Peterson said in a report.
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