Over the past 12 months, the Technology Select Sector SPDR Fund (XLK) – a member of the Kiplinger ETF 20, our favorite exchange-traded funds – has returned a loss of 10.5%, lagging a 5.0% loss in the S&P 500 Information Technology Index.
Both the ETF and the index are weighted by market value and include the same companies – the 69 tech stocks that are members of the S&P 500 stock index. So, what gives?
Weighting matters when it comes to fund returns
The weighting of stocks in the ETF varies from their weighting in the index, thanks to a rule in the Investment Company Act, enacted in 1940, that governs how mutual funds and ETFs should maintain diversification.
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