Statistics do not lie and the truth is, 2013 has been kind to the technology sector. However, some of the sector’s most familiar names have not enjoyed the tech party much this year.
As Josh Brown of Reformed Broker fame notes, the tech sector was up 47% year-to-date as of Nov. 1. Brown points out investors “should be aware that this triumph was accomplished without the help of some of the largest tech stocks in the indices.”
Tech rally? Not for Apple (AAPL), which is down almost 4.1% this year even with a 12.2% gain over the past 90 days. International Business Machines (IBM) is likely to be one of the Dogs of the Dow as it is currently sitting on an almost 9% loss for 2013. As Brown notes, Microsoft (MSFT) and Google (GOOG) have done the heavy lifting for large-cap tech, with year-to-date gains of over 30% and 42%, respectively.
Google and Microsoft have helped prop up ETFs such as the Technology Select Sector SPDR Fund (XLK) and the iShares U.S. Technology ETF (IYW) . IYW allocates over 20% of its combined weight to those stocks. That number is over 17% of XLK, an ETF that has recently been on the receiving end of a steady stream of inflows. [Tech ETFs See Strong October Inflows]
Unfortunately, Apple and IBM combine for 24% of IYW, over 20% of XLK and 19% of the Vanguard Information Technology ETF (VGT) . As the chart below indicates, all three have lagged the S&P 500 by decent margins this year.
Limiting Apple exposure, eliminating IBM while using ETFs that are either equal-weight funds or explicit plays on Internet stocks . Translation: Amazon (AMZN), Facebook (FB), Google and friends have been a lot better than Apple and IBM. So have Cisco (CSCO), Intel (INTC) and Microsoft. Hence the out-performance of the S&P 500 by the PowerShares QQQ (QQQ) . [These Nasdaq ETFs Hit All-Time Highs]
As the chart below indicates, equal-weight ETFs and even a Nasdaq ETF that has no tech exposure such as the First Trust NASDAQ-100 Ex-Technology Sector Index Fund (QQXT) have been better bets than the S&P 500 and traditional tech ETFs this year.
Tom Lydon’s clients own shares of Apple, Amazon, Google, Facebook, Intel, Microsoft, Cisco and QQQ.