What is SPXT? (Pros, Cons, and Strategies)

If you’re looking for a way to invest in the U.S. stock market but want to avoid the dominance of technology stocks, SPXT might be worth considering. SPXT, or the ProShares S&P 500 Ex-Technology ETF, provides a unique opportunity for those who are wary of the volatility and high valuations often associated with tech stocks. In this blog post, we’ll dive into what SPXT is, its advantages and disadvantages, and some strategies for incorporating it into your investment portfolio.

What is SPXT?

SPXT is an ETF (Exchange-Traded Fund) that aims to mirror the performance of the S&P 500 Index but with one significant twist—it excludes technology stocks. The rationale behind this ETF is to offer exposure to the broader U.S. equity market while avoiding the high-tech sector, which can often be more volatile.

Key Features of SPXT

• Exclusion of Tech Stocks: SPXT operates by excluding companies classified within the technology sector.
• Diversified Exposure: Despite the exclusion, it retains diversification across other major sectors like healthcare, financials, consumer staples, and industrials.

By removing tech stocks, SPXT offers a way for investors to potentially mitigate risk and decrease portfolio volatility, especially relevant in times of market instability driven by the tech sector.

SPXT Composition

SPXT comprises companies from various sectors, excluding technology. Some of the prominent companies included are Johnson & Johnson (JNJ), JPMorgan Chase (JPM), Procter & Gamble (PG), and ExxonMobil (XOM). This diversified exposure aims to provide a balanced risk-reward profile, as these sectors can offset each other’s performance swings.

Pros of SPXT

Reduced Volatility

One of the most compelling reasons to invest in SPXT is its reduced volatility compared to the standard S&P 500. Tech stocks are known for their high growth but also for their high risk and vulnerability to market cycles. By excluding these stocks, SPXT offers a more stable investment option.

Diversified Sector Exposure

With SPXT, you're investing in a broad range of industries such as healthcare, consumer goods, financials, and industrials. This diversified exposure can provide a buffer against sector-specific risks and offer multiple growth avenues.

Lower Risk

By excluding the tech sector, which can experience significant swings due to rapid innovation cycles, high valuations, and regulatory uncertainties, SPXT often represents a lower-risk option for conservative investors.

Cons of SPXT

Opportunity Cost

One of the downsides is the potential opportunity cost of missing out on the growth offered by technology stocks. While you might avoid the high volatility, you also give up the substantial gains that tech giants often provide.

Lower Overall Returns

Historically, the tech sector has been one of the best performers in the stock market. By excluding tech stocks, SPXT could potentially deliver lower overall returns compared to the S&P 500, especially in a tech-driven bull market.

SPXT Investment Strategies

Long-term Investment Strategy

SPXT is best suited for long-term investors seeking stable returns without the high-growth but volatile tech sector. Due to its diversified non-tech exposure, it's excellent for those planning to hold for over a decade, focusing on consistent growth rather than high-risk, high-reward investments.

Risk Mitigation

If you're looking to reduce the overall risk in your portfolio, SPXT can act as a balancing asset. Combining it with a separate tech-focused ETF can offer complementary exposure, allowing you to customize the balance between risk and growth according to your risk tolerance.

Income Focus

Since SPXT includes many sectors that traditionally offer dividends, such as healthcare and consumer staples, it can be integrated into a dividend-focused portfolio. This way, you can benefit from regular income in addition to growth.

In summary, SPXT offers a unique investment opportunity for those looking to diversify away from the high-risk tech sector while still gaining exposure to the broader U.S. market. While it might not deliver the stunning gains that tech can offer, its focus on stability and reduced volatility can be very appealing for conservative long-term investors.