This article is a part of InvestorPlace.com’s Best ETFs for 2020 contest. Bret Kenwell’s choice for the contest is the SPDR Innovative Technology Fund (NYSEARCA:XITK).
The SPDR FactSet Innovative ETF (NYSEARCA:XITK) continues to prove itself as a winner in 2020.
In Q4 2019, we were asked if we’d like to submit an entry for 2020’s best exchange-traded funds. I chose the XITK as it had a bevy of strong performers in its holdings and thus, lots of potential.
The ETF started off the year by storming higher, gapping higher by almost 3% on the first trading day of 2020. Shares ultimately rallied more than 13% into the February highs, before you-know-what came along.
The novel coronavirus didn’t spare anyone, as the ensuing selloff hammered virtually every stock in every sector. Equities, cryptocurrencies, commodities and even bonds saw a wave of volatility. Of course, the XITK did not dodge the selloff.
The ETF posted a peak-to-trough decline of 36.4%. That’s about in-line with the 35.4% fall investors saw in the S&P 500. However, while the latter has bounced by a little more than 40%, the XITK ETF is up an astounding 82% from its March lows.
Put simply, this ETF performed about in-line with the broader market on the downside, but has rallied twice as hard on the upside. That’s ideal price performance for investors looking for alpha.
Trading the XITK ETF
Click to Enlarge
It’s hard to be too critical of the ETF for getting hit so hard in March, given that most stocks and ETFs were under pressure as well. But just look at this rebound.
Shares reclaimed the 20-day moving average in early April and have tested this mark only once since, doing so in mid-June. That shows just how powerful the rally has been, with investors stepping in on every dip and gobbling the stock up.
The XITK is now becoming overbought in the short term, as it just hit new 52-week highs. At this point, a dip wouldn’t be surprising, although I would be careful not to get overly bearish here.
If the share price corrects lower, first look to see if the breakout level at $140 and the 20-day moving average act as support. If so, it’s a clear sign that bulls remain in control. It also leaves the 161.8% extension in play up near $157.
Below $140 and the 20-day moving average puts the larger breakout level in play near $125. It also puts the 50-day moving average on the table.
I don’t have a crystal ball, so it’s hard to say what’s next for the XITK ETF, largely because it’s hard to know what’s next for the overall market. However, all I can say is that the ETF is up 30% so far in 2020. That’s outperforming the S&P 500 and the Nasdaq, which is down 3% and up 13%, respectively.
Why XITK Is One of the Best ETFs
To get a better idea of why the XITK is among the best ETFs this year, we have to break down its components. When we examine the top holdings, it’s not hard to see why it’s doing so well.
Just look at the top five holdings, which include: Zoom Video (NASDAQ:ZM), Sea LTD (NYSE:SE), Zscaler (NASDAQ:ZS), Twilio (NYSE:TWLO) and Shopify (NYSE:SHOP).
Of the group, Twilio is the “worst” performer, up 117% so far this year. While the top holdings in this ETF have led the way, all more than doubling, they make up just 9.5% of the total fund.
In fact, the top ten holdings make up just 17.4% of the XITK ETF. While I would obviously enjoy a heavier weighting in the top holdings — as it would have translated to better performance so far — a more balanced weighting does diversify the ETF’s risk.
In any regard, the trend is our friend with this one and I am looking to see if XITK can keep up its winning ways. We’ll check up on it again near the end of Q3.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
