The Standard & Poor's 500, for example, has a 21% allocation to information technology-nowhere near the record 30% weighting the index had just before the market crash in 2000, but a figure still worth keeping an eye on.
And while these companies sometimes separate from the pack in near-term performance, their long-term correlation with the S&P 500 is north of 90%. That makes the ETFs more useful as shorter-term tactical plays than longer-term diversification tools.
With $9.3 billion in assets, the Technology Select Sector SPDR fund is by far the largest and most actively traded gateway to the group. Two other popular tech ETFs are the Vanguard Information Technology (VGT) fund and the iShares Dow Jones U.S. Technology Sector (IYW) vehicle.
While all these funds focus on large-cap technology stocks, they differ in some respects. The SPDR and Vanguard offerings have razor-thin expense ratios of 0.18% and 0.19%, respectively, while iShares charges 0.47%. The SPDR portfolio, which has 81 names, has an average market cap of $107 billion, while the Vanguard fund has $48 billion and 413 stocks. The iShares ETF falls somewhere in the middle of the pack, with 158 names and an average market capitalization of $89 billion.
Apple, whose stock price rose from $310 in June 2011 to more than $600 in March 2012, has for the last year been a powerful driver of the performance in the indexes these ETFs track. The stock now accounts for 20% to 25% of assets in the three exchange-traded funds.
Surrounded by a sea of iPhones and iPads, Apple bulls may not mind that level of concentration. Even with the run-up, analysts still find lots to love about the stock.
"We're maintaining a buy recommendation on Apple," says Scott Kessler, an analyst with S&P Capital IQ. "The company has succeeded in retail stores where others have failed, and it's able to design, promote and improve on products in a way that others in the industry have trouble replicating."
Kessler says the stock, which is trading at around 15 times estimated 2012 earnings, hasn't reached overpriced territory yet. "That's just a slight premium to the overall market, and Apple has much better growth prospects than most companies," he says.
In his latest report on the stock, Morningstar analyst Michael Holt notes, "Apple's near-term momentum continues to look unstoppable. Triple-digit growth rates will abate, but Apple still enjoys a long runway of profitable growth."
But Holt also notes the company faces challenges, including the possible long-term impact of co-founder Steve Jobs' death and Apple's heavy dependence on revenue from the iPhone. The stock's sharp pullback in early April reminded investors that the venerable tech giant, like any stock that's had a particularly strong run, is vulnerable to profit taking.
Aside from Apple, a number of tech ETFs have up to 60% of their assets in top 10 holdings such as Microsoft, IBM, Google, Intel and Oracle. For those who aren't comfortable with the big presence Apple and other stocks have in these ETFs, or who want to spread their bets by emphasizing more mid-cap names, Rydex's Guggenheim S&P 500 Equal Weight Technology ETF (RYT) gives roughly equal weighting to the 71 constituent stocks in its index. Without a big bite of Apple, it hasn't performed as well as the market-cap-weighted ETFs over the last year, but that could easily change if the stock hits a rough patch.
Further afield are ETFs offering more focused plays than those following the broad technology indexes. The semiconductor group, for example, has eight ETFs following it, including the most volatile of the group, the Direxion Daily Semiconductor Bull 3X fund (SOXL). This ETF uses leverage to amplify returns; it was up 50% in the first three months of this year. The Market Vectors Semiconductor fund (SMH) is a popular concentrated bet on the 25 largest semiconductor companies in the U.S. It has a 19% weighting in Intel. With an average daily trading volume of 1.6 million shares, it is one of the more actively traded tech ETFs. Another offering in the group, the SPDR S&P Semiconductor fund (XSD) is more spread out with 49 holdings and roughly 2.5% of its assets in each position.