Fund Watch


A Fund for Tech Stocks That Pay Juicy Dividends

Anjelica Tan

A fund loaded with big tech firms yields almost as much as the market’s 2%.



On a relative basis, it has been a subpar year for big tech. Over the past year, the group rose 23%, but that lagged Standard & Poor’s 500-stock index by 7 percentage points. That’s one reason tech stocks, which historically have been more expensive than the broad stock market, are looking like bargains these days. The typical large tech-company stock trades at 14 times estimated 2014 profits, while the S&P 500 sells for 15 times earnings.

See Also: 12 Stocks to Get Dividends Every Month

Technology Select Sector SPDR (symbol XLK) offers broad exposure to technology, but it’s not exactly a pure play on the sector. The exchange-traded fund tracks an index of 72 established firms in the S&P 500, including six telecom companies. The phone companies help boost the ETF’s dividend yield to 1.7%, close to the 2.0% yield of the S&P 500.

Because the ETF is heavy on large companies, the fund hasn’t been as hot as Internet-focused ETFs, which invest in faster-growing firms. Some of those ETFs have gained upward of 40% over the past 12 months, boosted by big gains from the likes of Netflix (up 348%) and Pandora (up 226%). But Technology SPDR hasn’t experienced the same ups and downs, either—over the past five years, it has been about 25% less volatile than the PowerShares Nasdaq Internet ETF.

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In keeping with the benchmark it tracks, the ETF is rebalanced quarterly. The index holdings are weighted by market value, but that rule goes by the wayside if a stock exceeds 25% of the fund’s assets.

Technology Select Sector SPDR graphic

*Based on estimated earnings. Source: State Street Global Advisors

Technology Sector ETFs graphic

Through Nov. 29, 2013. *Assumes reinvestment of all dividends and capital gains; three- and five-year returns are annualized. Market correction is from April 29 through October 3, 2011. Expense ratio is the percentage of assets claimed annually for operating a fund. Source: Morningstar Inc.



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