Select Sector SPDR’s are unique investments that unbundle the benchmark S&P500 and provide ownership in particular sectors or groups of industries that are represented by a specified Select Sector Index. This enables you, through a single share, to easily and conveniently buy or sell any of nine major industry sectors the way you buy or sell a share of stock.
The Sector SPDR’s replicate the sector sub indices of the S&P500. There are nine Select Sector Spiders currently available in the US.
This report focuses on the Technology Select Sector SPDR. The Technology Select Sector Index contains approximately 60 stocks covering defence manufacturers, telecommunications equipment, microcomputer components, integrated computer circuits and process monitoring systems. Companies in the Technology SPDR include companies on both the technology laden Nasdaq market and the New York Stock Exchange.
|
Historical Perfomance as at April 21 |
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|
|
3mth |
6mth |
1yr |
2yrs |
3yrs |
|
XLK |
0.80 |
33.24 |
45.85 |
55.88 |
61.71 |
The Technology SPDR Fund shares are fully listed securities that represent ownership in a fund designed to accumulate and hold a portfolio of stocks intended to track the price performance and dividend yield of the Technology Select Sector Index. As at 22 March 2000, the technology sector accounted for 34.5% of the S&P 500 Index.
The Technology SPDR portfolio is weighted on a modified market-value (capitalisation) basis.
This means stocks that are the largest by value (no. of shares x price) represent proportionately more of the Index. The three largest stocks currently are Cisco, Intel and Microsoft accounting for approximately 27% of the Index.
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Top 20 members of the Select Sector Tech Index Fund (XLK) |
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|
Company |
Weighting |
Company |
Weighting |
|
Cisco |
9.84 |
America Online |
3.05 |
|
Intel |
9.10 |
FMC Corp |
3.01 |
|
Microsoft |
7.87 |
Dell |
2.87 |
|
Oracle |
4.69 |
Taxas Instruments |
2.72 |
|
Lucent |
4.43 |
MCI Worldcom |
2.04 |
|
IBM |
4.41 |
Motorola |
1.75 |
|
AT&T |
3.63 |
Qualcomm |
1.69 |
|
Nortel |
3.41 |
Applied Material |
1.62 |
|
Sun Microsystems |
3.26 |
Yahoo |
1.43 |
|
Hewlett-Packard |
3.07 |
Amgen |
1.23 |
ADVANTAGES OF SPDR’S
Tax Efficiency
Because the SPDR is designed to closely track the Sector Index, it is a passive fund. There is no tax impost on capital gains within the SPDR.
Low Costs
Unlike actively managed equity funds that attempt to outperform the market, the Technology SPDR Fund seeks to provide investment results that correspond to the price and yield performance of its Sector Index. It is designed for investors who seek a relatively low-cost "passive" approach for investing in sector portfolios. That translates into lower operating expenses and management fees. The current annual management fee is 0.65% per annum.
Quarterly Dividends
Your SPDR holdings may pay you quarterly cash dividends representing dividends accumulated on the stocks held by the respective Select Sector SPDR Fund, less fees and expenses of the Fund.
In practice, the very low or no dividend yields of a number of stocks in the Technology Select Sector SPDR will mean no or only very small dividends will acrue.
Track a Market Index
The Select Sector SPDR’s are an efficient method of investing in a portfolio of securities in a sector in a single trade. The technology sector is a vital sector of the US market and its dominance is ever increasing. It now accounts for approximately 20% of the total S&P500 Index. The Technology Select Sector SPDR provides investors with an efficient vehicle to gain diversified exposure to this fast growing sector. Due to the pace of change in the industry and rapid technological advancements, companies within the industry exhibit a higher level of volatility and therefore risk. However, along with the higher volatility comes higher expected returns.
The Technology Select Sector SPDR allows investors access to these potentially higher returns whilst reducing the company specific volatility and risk due to the spreading of exposure across approximately 60 companies.
An excellent vehicle for any long term growth portfolio.
The Technology Select Sector SPDR is now included in Craig & Co’s START Savings Series allowing investors a drip feed approach to this sector.
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