How is your technology ETF doing so far this year? My guess is that you are likely disappointed if you have tilted your portfolio through ETFstoward technology. While the S&P 500 has jumped almost 4.2% to start the year, the technology component, according to Standard & Poor's, has increased just 1.85%, the tird-worst sector of the 10 that comprise the index.
It's rather interesting to dive in, as one might automatically conclude incorrectly that technology stocks just aren't performing well. Through 1/18, 38 of the 71 names that make up the sector (54%) have increased more than the 4.19% rise in the S&P 500. If you own a technology stock, you are more likely than not doing better than owning a non-technology stock on average. This means that the other 46% must be performing really badly then, right? Not exactly, as only 11 of the other 33 names have declined in price.
So, what is going on? To answer that question, one must understand the fatal flaw of indexes based on market capitalization. The S&P 500 gives more weight to bigger stocks, forcing passive investors to become momentum players by owning larger percentages of underlying stocks as they appreciate in value and smaller amounts as they fall.
In the case of technology, one company dominates the sector: Apple (AAPL). So far this year, it has declined 6%, the absolute worst performance of the 71 technology stocks in the index.
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