This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

A Standout Tech ETF

As exchange-traded funds grow in popularity, the providers face a big obstacle when they're issuing new ETFs: making sure the new ETFs actually offer something new.

For instance, big-cap tech has many broad-based ETFs, and they almost all have very similar holdings. In fact, Microsoft (MSFT - Get Report) and Intel (INTC - Get Report) are the largest holdings of every broad-based tech ETF except for one, the streetTracks Morgan Stanley Technology ETF (MTK), which is benchmarked to the Morgan Stanley Technology Index (MSH).

Furthermore, all of the other broad-based tech ETFs are mega-cap focused, with very large weightings in IBM (IBM), Cisco (CSCO - Get Report) and Dell (DELL), in addition to Microsoft and Intel.

  • Tech Sector SPDR(XLK) MSFT 12.23% INTC 7.26%
  • iShares Dow Jones Tech(IYW) MSFT 12.94% INTC 7.96%
  • iShares Goldman Tech(IGM) MSFT 8.29% INTC 6.95%
  • iShares S+P Global Tech(IXN) MSFT 10.13% INTC 6.41%
  • Vanguard Tech VIPERS(VGT) MSFT 11.89% INTC 7.93%

MTK has much less concentration in those two bellwhethers than its peers, Intel is No. 10 at 3%, and Microsoft is No. 15, at 2.8%.

    1) Google (GOOG - Get Report), 5.61%
    2) Broadcom (BRCM), 4.06%
    3) Nvidia (NVDA), 3.74%
    4) Motorola (MOT), 3.71%
    5) Hewlett Packard (HPQ), 3.71%
    6) Texas Instruments (TXN), 3.64%
    7 ) Intuit (INTU), 3.26%
    8) (AMZN), 3.13%
    9) Yahoo! (YHOO - Get Report), 3.06%
    10) Intel, 3%

The unique composition offers MTK a couple of advantages, including more consumer exposure through its Internet holdings, which creates broader exposure within the sector, less single-stock risk and a smaller average market cap than XLK ($56 billion for MTK vs. $68 billion for XLK).

A couple of months ago I wrote an article about the lag of mega-cap tech stocks making the risk/reward generally unattractive. It makes sense to think that the mega-caps will rotate into favor at some point. But until then, MTK offers a way to access the technology sector without the single-stock risk inherent in all the other tech ETFs.

Depth Creates Chop

Of course, the unique composition creates some issues, too. Because of its companies selected and the number of holdings (35), investors should expect more volatility from MTK than the other tech ETFs.

StreetTracks Morgan Stanley Technology ETF (MTK:Amex)
Large number of holdings can add to volatility
Source: Roger Nusbaum, Your Source Financial

Over the last two years, MTK has had a tight correlation to volume leader XLK, but it has started to pull away, thanks to its exposure to Google and Broadcom.

The one-year chart shows that MTK lags slightly in downturns and outperforms during upturns. Over the last year, a mediocre year for the sector, MTK has outperformed the second-best-performing ETF, the Vanguard Technology VIPERS, by 110 basis points.

The MTK Outperforms
It beats Vanguard's tech VIPERs
Source: Roger Nusbaum, Your Source Financial
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
CSCO $27.96 -2.40%
GOOG $691.20 -2.10%
INTC $31.11 -2.00%
MSFT $49.90 -2.00%
YHOO $36.58 -1.00%


Chart of I:DJI
DOW 17,830.76 -210.79 -1.17%
S&P 500 2,075.81 -19.34 -0.92%
NASDAQ 4,805.2910 -57.85 -1.19%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs