ETF Of The Day: XLK; Perfect Timing

Published on Tuesday, 24 January 2012 23:49 Written by Todd Shriber

New York, January 24^th  (TradersHuddle.com) – Those not living under a rock by now know that Apple (NASDAQ: AAPL), the tech juggernaut and the second-largest U.S. company my market value, reported what can only be considered stellar fiscal first-quarter results Tuesday after the market closed. The maker of iPhones and iPads reported fiscal first-quarter EPS of $13.87 on sales of $46.3 billion. Analysts were expecting $10.08 a share on revenue of $38.85 billion.

That’s a blowout report and it sent Apple share to $451 in the after-hours session. And that big move will put the spotlight on a number of ETFs, the Technology Select Sector SPDR (NYSE: XLK) chief among them. While not the biggest tech ETF, the Technology Select Sector SPDR is one of the oldest tracking the sector and its expense ratio of 0.2% is one of the better ones in the tech ETF space.

To say Apple will have a profound impact on XLK is a fair statement. The stock represents almost 15% of the ETF’s weight. Put another way, one would have to combine XLK’s allocations to Google (NASDAQ: GOOG), Oracle (NASDAQ: ORCL) and Intel (NASDAQ: INTC) to top the weight that Apple represents on its own.

When ETF devotes as much of its weight to a single stock as XLK does to Apple, it can be a cause for concern. However, when it comes to Apple and a price tag that’s approaching $500 a share, ETFs often represent the best alternative for investors looking to get in the Apple game without shelling out $4,500 for just 10 shares.

Overall, XLK is home to almost 80 stocks, but the top-10 holdings represent approximately two-thirds of XLK’s weight.

Of course XLK, which is home to almost $8.7 billion in assets under management, isn’t all about Apple. The ETF is useful for getting exposure to other triple-digit stocks such as Google and Dow component International Business Machines (NYSE: IBM). In addition to Intel and IBM, XLK’s features four more Dow components among its top-10 holdings: Microsoft (Nasdaq: MSFT), AT&T (NYSE: T) and Verizon (NSYE: VZ), Cisco Systems (NASDAQ: CSCO). Qualcomm (NASDAQ: QCOM) rounds out the ETF’s top-10 holdings.

Other familiar names with small weights in XLK include Broadcom (Nasdaq: BRCM), EMC (NYSE: EMC) eBay (NASDAQ: EBAY) Texas Instruments (NASDAQ: TXN) and Yahoo (NASDAQ: YHOO).

There’s one important factor to consider with XLK and that is performance. OK, that’s a VERY important factor and it should be noted that in the past year, XLK has slightly outperformed the Nasdaq and Google. On the other hand, investors need to know that Apple, IBM, Intel and Qualcom have all delivered better returns than XLK over the same time.