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

You Need to Know What's in Your ETF

NEW YORK ( TheStreet) -- Earlier this week I looked at's (AMZN) weighting in certain tech-related exchange-traded funds and its omission from others.

The Internet-themed ETFs such as First Trust DJ Internet Index Fund (FDN) own Amazon, while broad technology-sector funds such as the Technology Select Sector SPDR (XLK) do not.

This year FDN is up 39% compared to just 10% for XLK. XLK has also lagged far behind the S&P 500's 17% gain this year.

The difference between the two is likely less attributable to Amazon and its 22% gain this year so much as XLK's inclusion of Apple (AAPL), which makes up 14% of the fund and is down 9% this year.

In late 2006, ETF provider Rydex, which was subsequently acquired by Guggenheim, created a suite of funds that took the sectors of the S&P 500 and weighted the holdings equally. So while Apple has a 14% weighting in XLK, it has only a 1.6% weighting in the Guggenheim S&P 500 Equal Weight Technology ETF (RYT).

RYT is up 26% in 2013, more than double XLK's gain this year.

Over the years we have consistently discussed the importance of looking under the hood of any ETF to understand the makeup of the portfolio. An investor should have some understanding of an individual holding that takes up a disproportionately large position in a fund.

Apple has gone from an undeniable can't-miss stock to one with many questions now unanswered. The decision to avoid a company is much simpler than the decision to buy one. One does not need to be a Wall Street analyst to have realized that the story at Apple started to change a year ago and become more uncertain. Faced with this, an investor who invests at the sector level could have switched from XLK or any of the other broad, market cap-weighted tech ETFs into RYT.

This effect has happened with other sector funds in the past. General Electric (GE) is the largest holding in the Industrial Select Sector SPDR (XLI), with an 11% weighting. Going into the financial crisis, it had more than a 20% weighting in XLI vs. a sub-2% weighting in Guggenheim S&P 500 Equal Weight Industrials ETF (RGI).
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
RGI $88.98 0.00%
RYT $90.41 0.00%
XLI $56.45 0.00%
XLK $42.44 0.00%
AAPL $93.64 0.00%


Chart of I:DJI
DOW 17,891.16 +117.52 0.66%
S&P 500 2,081.43 +16.13 0.78%
NASDAQ 4,817.5940 +42.2360 0.88%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs