After a dismal 2022 marked by aggressive interest rate hikes, the U.S. tech sector has roared back to life, led by stellar April earnings reports from mega-cap leaders like Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL), and Meta.
Apple's strong quarter largely stemmed from its iPhone sales that surpassed expectations, while Microsoft beat estimates for top and bottom lines while issuing rosy guidance for its use of AI to drive revenue growth. Alphabet pleased shareholders by authorizing a $70 billion share buyback, and Meta rallied after a difficult year with an increase in revenue and a stronger forecast for the next quarter.
The results can also be seen in ETF markets. While the benchmark SPDR S&P 500 ETF (SPY (NYSE:SPY)) is up just 8.38% as of May 8th 2023, the tech and mega-cap heavy Vanguard Mega Cap Growth Index Fund ETF (MGK) has surged by 22.26%, buoyed by the positive earnings reports.
Despite calls for a small-cap and value stock resurgence, the results of 2023 so far make it clear that the days of big U.S. tech dominance may be far from over. Despite a slowdown throughout 2022, the recent earnings reports show that big U.S. tech remains as profitable as ever, and the AI boom has also given them new tailwinds for continued growth.
A great way to find ETFs with U.S. large-cap tech exposure is via the ETF Central Screener. I've pre-selected the correct filters here, but investors can adjust the screening criteria as they see fit. Here's a look at three notable NYSE-listed ETFs investors can consider:
The Technology Select Sector SPDR Fund (XLK)
One of the most well-known and popular U.S. technology sector ETFs is XLF. This ETF is one of State Street (NYSE:STT) Global Advisors' 11 "Select Sector" funds, each of which tracks a unique sector represented within the broader S&P 500 index. In the case of XLK, the ETF tracks the Technology Select Sector Index, which provides exposure to hardware, software, IT services, semiconductor, and tech manufacturers.
However, it is important to note that XLK is a pure technology sector ETF. That is, it excludes some stocks that many investors consider technology, but actually sit in other sectors based on the Select Sector indexes. Examples include Alphabet, Meta, and Netflix (NASDAQ:NFLX). To track these stocks, investors will need to buy The Communication Services Select Sector SPDR Fund (XLC).
Invesco S&P 500 Equal Weight Technology ETF (RYT)
A common criticism of market cap-weighted index ETFs like XLF is concentration in a handful of top holdings. This is beneficial when said large-cap stocks perform well and beat earnings but can lead to larger drawdowns and higher volatility if they do poorly. An alternative here is RYT, which equally weights stocks in the information technology sector of the broader S&P 500 index.
The equal-weighting methodology means that a mid-cap stock like Lam Research Corp (NASDAQ:LRCX). is held in the same proportions as say, Apple or Microsoft. However, do note that these weightings can shift between quarterly rebalancing cycles. RYT also has a substantially higher allocation to mid-cap stocks, particularly those with a blend or growth equity style.
SPDR NYSE Technology ETF (XNTK)
Another concentrated approach to U.S. large-cap tech investing is via XNTK, which tracks the NYSE Technology Index. This index holds 35 leading US-listed technology-related companies, which are equally weighted and rebalanced annually. Unlike XLF, XNTK also holds technology-related stocks in other sectors such as Netflix, Meta, Shopify (TSX:SHOP), and Airbnb (NASDAQ:ABNB), giving it more of a broad focus.
Another perk of XNTK is a smattering of global diversification, with important international tech companies like ASML, Alibaba (NYSE:BABA), and Taiwan Semiconductor Manufacturing earning a spot. Still, 75% of the ETF must be comprised of U.S.-based companies. Investors also get some quality and growth screens thanks to criteria for revenue, sales, market cap, and liquidity.
This content was originally published by our partners at ETF Central.