The Latest Boom In Tech Stocks; Turn To The Technology Select Sector ETF (XLK, AAPL, MU, AMD, LSI)

Benjamin Shepherd:  As the broader markets turn in a stellar performance, technology has been far and away one of the hottest sectors. That’s driven a huge 17.5 percent gain in the Technology SelectSector SPDR (NYSEARCA:XLK), just in the first quarter of 2012 alone.

Although highly commoditized, the semiconductor industry has been the top-performing industry group in the Technology Select Sector’s portfolio, with Advanced Micro Devices (NYSE:AMD), LSI Corp (NYSE:LSI) and Micron Technology (NYSE:MU) all gaining on average about 40 percent so far this year.

With a 10.2 percent weighting in the portfolio, semiconductors have significantly buoyed the fund’s performance so far this year. An improving economy lifts tech shares as a whole, as companies make long-deferred technology investments to remain competitive and consumers have greater wherewithal to buy a host of gadgets. However, two specific developments are the most responsible for the gains in semiconductors.

Floods devastated key global semiconductor manufacturing facilities in emerging market, Thailand, late last year, resulting in constricted supplies. At the same time, the increasing popularity of ultra-sophisticated consumer electronics has created a growing demand for advanced semiconductors.

PC shipments are expected to grow by 4.5 percent this year, driven by the expected launch of Windows 8, while tablet computer production—think Apple’s (NASDAQ:AAPL) iPad—is expected to explode this year by more than 75 percent. Smartphone production also is expected to grow by about 7 percent in 2012. If those gains ultimately materialize, they will result in global semiconductor demand worth about $300 billion in 2012.

The stratospheric rise of Apple’s share price of more than 40 percent so far this year has been another major positive for Technology Select SPDR, because the company is the fund’s largest single holding, at 18.3 percent of assets.

While the iPhone remains a key driver of Apple’s profit, the runaway success of the company’s iPad tablet is largely to thank for the bullish sentiment the company currently enjoys. So far, the iPad controls the lion’s share of the tablet market, with most other tablet makers already considered also-rans.

Barring a severe global economic disruption, semiconductor manufacturers should continue to benefit from booming chip demand this year. They’ll continue to make positive contributions to Technology Select Sector SPDR, in tandem with well-positioned gadget manufacturers such as Apple. To uncover more top stocks to watch, check out my column on Investing Daily. 

Written By Benjamin Shepherd From Global ETF Profits  Disclosure: No Positions.

Benjamin Shepherd, editor of Louis Rukeyser’s Mutual Funds and Louis Rukeyser’s Wall Street, focuses on time-tested mutual fund managers and investment strategies which have proven themselves in both bull and bear markets. He and his team spend hours every month discussing the state of the global economy and the markets with many of the best known and well-respected money managers in the industry. They then distill that wisdom and their own analysis into twelve pages of actionable advice geared towards generating  returns while preserving  capital for both mutual fund and stock investors. Mr. Shepherd is also associate editor of Personal Financeone of the world’s most widely-read investment newsletters, contributing his knowledge of the fund industry to the newsletters ongoing commentary.

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