Exchange-traded fund provider State Street Global Advisors (SSGA) has listed the SPDR S&P Technology Hardware ETF (XTH) and the SPDR S&P Internet ETF (XWEB) on NYSE Arca. The two new US equity ETFs are launched on the back of investor demand for refined exposures to the sub-industries of the technology and consumer discretionary sectors.
The SPDR S&P Technology Hardware ETF includes well-known constituents such as Apple, Hewlett Packard and Lexmark, while the SPDR S&P Internet ETF invests in companies such as Facebook, LinkedIn and Amazon.
They are part of SSGA’s suite of modified equal-weighted S&P Industry ETFs, which now includes 20 funds and more than $13bn in assets under management.
Nick Good, co-head of the Global SPDR business at SSGA, said: “The US technology-related landscape includes a wide range of companies; from younger firms focused on cutting edge products to the largest, most well-known brands… Investors have asked us for solutions to help refine their investment options by gaining access to technology-related sub-industries that are found in XTH and XWEB.”
The two ETFs use equal-weight methodologies and consequently lean more toward mid- and small-cap companies.
Good said: “With a modified equal weighted approach, investors may reduce the risk of being limited to a portfolio driven by one or two large names, relative to a market cap weighted approach.”
The SPDR S&P Technology Hardware ETF tracks the S&P Technology Hardware Select Industry Index, which, as of 28 June 2016, comprises companies in the technology hardware, storage & peripherals sub-industry (42.9%), electronic equipment and instruments sub-industry (31.0%), and electronic components sub-industry (26.1%). There are 43 holdings in the index with the largest holding comprising 3.0% of the fund. The weighted average market capitalisation of the constituents is $20.9bn. Well-known names within the index include Apple and Hewlett Packard, as well as audio noise reduction specialist Dolby Laboratories and laser printer manufacturer Lexmark.
While there are no significant ETFs currently exclusively covering the US technology hardware space, the SPDR S&P Technology Hardware ETF will be indirectly competing with several broadly tech-focused funds such as the $2.3bn iShares US Technology ETF (NYSE Arca: IYW) which includes a 27.4% allocation to technology hardware and equipment firms.
Year-to-date (YTD) the index is up 0.4% on a total return basis, compared to its benchmark, the S&P Composite 1500, which is up 4.2%. Over the past five years the index has returned an average 5.5% per year with a standard deviation of 20.6%.
The SPDR S&P Internet ETF tracks the S&P Internet Select Industry Index, which, as of 28 June 2016, comprises companies in the internet retail sub-industry (78.7%), and internet software and services sub-industry (21.3%). There are 60 holdings in the index with the largest holding representing 3.1%. The weighted average market capitalisation of the constituents is $30.0bn. Well-known names within the index include LinkedIn, Twitter, Amazon, Yahoo, Alphabet and Yelp.
YTD the index is down 3.2% on a total return basis. Over the past five years the index has returned an average 10.5% per year with a standard deviation of 18.9%.
While constituents in each index are initially equally-weighted at the time of the index re-balance, less liquid stocks may have their weight reduced to the ratio of their median three-month daily trading value compared to a theoretical portfolio value, if that ratio is less than their initially assigned weight. In this way, the S&P Select Industry Indices are able to reduce exposure to stocks which may carry higher liquidity costs.
The ETFs have net expense ratios of 0.35%.
The SPDR S&P Internet ETF will be competing with the First Trust Dow Jones Internet Index Fund (NYSE Arca: FDN), which tracks the Dow Jones Internet Index and has a net expense ratio of 0.57%, and the PowerShares NASDAQ Internet Portfolio ETF (Nasdaq: PNQI), which tracks the Nasdaq Internet Index and has a net expense ratio of 0.60%.
For European investors, there are a number of ETFs tracking broad technology sector indices compiled by S&P Dow Jones which hold many of the same constituents as both newly-launched funds. These include the iShares S&P 500 Information Technology Sector UCITS ETF (LSE: IUIT), which has a net expense ratio of 0.15%, the SPDR S&P US Technology Select Sector UCITS ETF (LSE: SXLK), which has a net expense ratio of 0.15%, and the Source Technology S&P US Select Sector UCITS ETF (LSE: XLKS), which has a net expense ratio of 0.30%.