Tech ETF Tempts Again

11:56AM ET 5/09/2018 Benzinga

The Technology Select Sector SPDR (NYSE: XLK), the largest technology exchange-traded fund by assets, took its lumps at the end of the first quarter. Those lumps appear short-lived as XLK has posted a second-quarter gain of nearly 6 percent.

Various data points suggest investors are once again embracing XLK, an ETF known for its large weights to tech titans such as Apple Inc. (NASDAQ: AAPL), Microsoft Corporation (NASDAQ: MSFT) and Alphabet Inc. (NASDAQ: GOOGL), among others.

What Happened

Tuesday was a busy day for XLK thanks to two sizable block trades.

“Investors bought a combined 3 million shares of XLK worth $202 million between the two trades, the largest intraday transactions this year," according to data compiled by Bloomberg.

XLK holdings include companies engage in “technology hardware, storage, and peripherals; software; diversified telecommunication services; communications equipment; semiconductors and semiconductor equipment; internet software and services; IT services; electronic equipment, instruments and components; and wireless telecommunication services,” according to the issuer.

Why It's Important

Traders renewing their enthusiasm for XLK could be a sign they're wagering on more upside for the likes of Apple, Alphabet and Facebook Inc. (NASDAQ: FB). That trio combines for nearly 32 percent of XLK's roster.

Enthusiasm for technology stocks is usually good for the broader market. The S&P 500 devotes 25.66 percent of its weight to technology stocks and four of XLK's top 10 holdings are also top 10 components in the S&P 500.

Last month, shares outstanding in XLK contracted, meaning Tuesday's inflows could serve to reverse those recent departures. Short interest in XLK stood at 7 percent at the end of April, according to Alta-Vista Research.

What's Next

“Expectations for this year are for acceleration on the top line as corporations boost capital spending following the tax cut, but analysts also foresee a substantial slowdown for 2019E,” said AltaVista. “Overall we rate Tech on par with the S&P 500.”

The research firm has a Neutral rating on XLK.

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