Market Overview

Get To Know This Tech ETF

Get To Know This Tech ETF

While concerns about valuations linger, scores of exchange traded funds (ETFs) tracking the technology sector, the largest sector weight in the S&P 500, continue ascending to record highs. One of the technology ETFs that hit a record high Tuesday was the SPDR Morgan Stanley Technology ETF (NYSE: MTK).

MTK follows the Morgan Stanley Technology Index, which “is composed purely of electronics-based technology companies,” according to State Street Global Advisors (SSgA).

“The tech sector posted double-digit earnings growth in the last two quarters, and it boasts the highest percentage of firms exceeding earnings expectations in the past four quarters among the 11 Global Industry Classification Standard (GICS) sectors,” said SSgA in a recent note. “Such strong earnings growth momentum is expected to continue through 2017, evidenced by the rising earnings estimates shown.”

MTK: A Different Tech ETF

While traditional technology ETFs are weighted by market capitalization and thereby heavily allocated to big-name stocks such as Apple Inc. (NASDAQ: AAPL), MTK takes a different approach. MTK's 36 holdings are equally weighted with none exceeding a weight of 3.9 percent.

The ETF is mostly allocated to U.S. technology stocks, but it has some exposure to China via Alibaba Group Holding Ltd. (NYSE: BABA), the MTK's largest holding. Although it's home to just 36 stocks, MTK features exposure to 12 technology industry groups with communications equipment and Internet software and services combining for 28 percent of the ETF's roster.

Application software, systems software providers and Internet and e-commerce names combine for almost a third of the ETF's weight. The differences between MTK and traditional cap-weighted technology ETFs are meaningful. Over the past 36 months, MTK is up 62.1 percent while the largest traditional technology ETF is higher by 52.8 percent. MTK has been only slightly more volatile than its standard rival over that stretch.

More To Like

MTK has been around almost 17 years and has nearly $754 million in assets under management, so the ETF is neither new nor especially small. “Overlooked” might be the more accurate description, but there are other perks with this ETF to consider.

“The exposure goes beyond the GICS tech sector, and its equal-dollar-weighted methodology may lead to lower portfolio concentration risks,” said SSgA. “For example, MTK’s 10 largest holdings account for 34 percent of the total portfolio, compared to 64 percent for the S&P 500 Information Technology Index, a market-cap weighted sector index.”

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Posted-In: Morgan Stanley Technology IndexLong Ideas Sector ETFs Tech Trading Ideas ETFs Best of Benzinga


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