XNTK - XNTK: Probably Better Than Other Tech Funds Now
2023-12-04 11:55:10 ET
Summary
- The SPDR NYSE Technology ETF is a comparatively better tech play than larger well-known funds.
- XNTK tracks the NYSE Technology Index, consisting of 35 prominent US-listed technology-related companies.
- XNTK offers exposure to the booming technology sector but has potential downsides such as underperformance and allocation to non-tech sectors.
Technology has been all the rage this year, and I've myself noted that I think the sector overall is very vulnerable. But keep in mind, not all Technology funds are constructed the same. Some can do better than others based on construction. From that standpoint, the SPDR NYSE Technology ETF ( XNTK ) looks like a comparatively better Tech play than larger well-known funds, at least on a relative basis. Let's look into why.
XNTK is a passively managed exchange-traded fund designed to provide broad exposure to the Technology - Broad segment of the equity market. Launched on September 25, 2000, by State Street Global Advisors, the fund aims to replicate the performance of the NYSE Technology Index before fees and expenses.
The NYSE Technology Index, the benchmark that XNTK tracks, consists of 35 prominent U.S.-listed technology-related companies. The index includes stocks from the Information Technology sector and technology-related stocks from the Consumer Discretionary sector. The fund operates on an equal-weighted basis during its annual rebalancing, ensuring each constituent stock has an equal impact on the fund's performance.
This alone makes it attractive, as it avoids the highest risk market-cap weighted tech sectors most are chasing into year-end.
Examining the Holdings of XNTK
XNTK is comprised of 35 holdings. The fund's holdings, which are primarily concentrated in the technology and consumer cyclicals sectors, are exclusively located within the United States. The top individual positions in XNTK include:
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Meta Platforms, Inc. class A ( META ) : A leading social networking company that owns platforms such as Facebook, Instagram, and WhatsApp.
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Nvidia Corp. ( NVDA ) : A multinational technology company known for its graphics processing units for the gaming and professional markets.
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Uber Technologies, Inc. ( UBER ) : A ride-hailing company that has expanded into areas such as food delivery and freight transportation.
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Salesforce, Inc. ( CRM ) : A cloud-based software company that provides customer relationship management service and enterprise applications.
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Adobe Inc. ( ADBE ) : A multinational computer software company best known for multimedia and creativity software products.
These of course are all household names, but what you own often matters a lot less than how much you own of it. The weighting aspect of the fund is why I prefer it over market-cap weighted averaged. Looking at the below which shows each of the stocks mentioned relative to the S&P 500, we can see that Meta, Nvidia, and Adobe relative to the S&P 500 are all rolling over, suggesting underperformance in the near-term is likely. Salesforce and Uber however are showing relative strength. The weightings here are countering the otherwise large impact those stocks rolling over would have on market-cap weighted averages.
These top five holdings account for approximately 22% of the fund's total assets, with each holding no more than 5.4% of the fund's total value.
Industry Composition of XNTK
The industry composition of XNTK is primarily focused on the technology sector, with a significant allocation also to the consumer cyclical sector. This makes it less of a pure-play Technology fund, which again isn't necessarily a bad thing at this point in the cycle.
Peer Comparison: XNTK vs. Other Technology ETFs
XNTK faces stiff competition from other similar ETFs. The behemoth is the Technology Select Sector SPDR ETF ( XLK ). While XNTK and XLK provide exposure to the technology sector, there are key differences in their structures and performances. For the past ten years, XNTK has underperformed XLK. However, XNTK has managed to slightly outperform in 2023. Much of this has to do with the weighting structure of XLK which is not equal weighted.
In terms of cost, XNTK has a gross expense ratio of 0.36%, which is higher than the 0.10% by XLK.
Pros and Cons of Investing in XNTK
On the positive side, XNTK offers exposure to the booming technology sector, which continues to display strong growth driven by ongoing advancements in areas like artificial intelligence, cloud computing, and cybersecurity. Booming technology companies does not mean booming technology stock movement however, as a lot of future growth is likely already priced in given momentum this year - which is why I'm broadly negative on the sector overall.
For those that disagree with the idea that Tech has priced in a lot of optimism, the equal-weighted nature of XNTK may appeal to investors seeking to avoid concentration risk associated with funds that heavily weight a few large-cap stocks.
However, XNTK also has some potential downsides. The fund's underperformance compared to its peers raises questions about its future performance potential. Also, a significant portion of the fund's holdings is allocated to non-technology sectors, which could dilute the fund's technology focus. Lastly, the fund's higher expense ratio compared to its peers could detract from its net returns.
To Invest or Not to Invest?
The SPDR® NYSE Technology ETF ((XNTK)) certainly offers a unique investment proposition with its equal weighting approach and blend of technology and consumer cyclical sectors. However, its underperformance relative to peers, allocation to non-technology sectors, and higher expense ratio could make it less appealing to some investors.
I don't like Tech broadly, but I think if one does, this is a good option to consider rotating other tech exposure into for a moment in time.
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XNTK: Probably Better Than Other Tech Funds Now