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How Should You Play The Tech Sector?

Eric Dutram

So far in 2012, technology is the best performing market segment. In fact, the technology select sector SPDR, XLK, has managed to edge out consumer discretionary (XLY), putting up a 10.6% return so far this year compared to a roughly 4.8% gain for SPY in the same time period (read Three Technology ETFs Outperforming XLK).

Yet when investors delve into the various industries of the tech world, the returns become a bit more muddled as performances have been across the board. Currently, the multimedia and internet segments are down more than 5%, while networking and semiconductors are flat. Meanwhile, software and related services are leading the way on the upside, carrying the tech sector in the first five months of the year.

Furthermore, when drilling down into individual companies, the picture becomes even less clear, even when looking at some of the large cap, ultra famous names in the space. For example, consider how some of the biggest tech companies have been doing so far this year:

Clearly not much of a trend has been able to develop in the technology market and the solid returns in the space have been driven by a few mega caps and their outsized performances to start the year. Beyond the APPL juggernaut, returns in tech have been pretty much a roll of the dice so far in 2012 (see Three Great Tech ETFs That Avoid Apple).

Given this reality, investors have to be wondering how best to play the segment as we head into the second half of June. Technology has proven to be a top performer and crucial to economic growth so a lack of exposure probably isn’t a good idea, but can investors continue to focus on Apple, software, and a few telecoms?

Or could it be time to cycle into the unloved segments of the tech world, buying some computer manufacturers, search, and social media instead?

What corner of the technology world do you think is the best to be in right now?

Let us know in the comments below!

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