Big risks, big rewards
Tech stocks are exciting. Apple (ticker: AAPL) is up almost 9,000 percent in the past 20 years, Amazon.com (AMZN) has seen a 38,000 percent increase since coming public in 1997, and even sluggish Microsoft (MSFT) has gained 1,200 percent in total returns over the past two decades. But on the downside, there are duds like Groupon (GRPN) and Etsy (ETSY) — once-cute concepts that sapped investors’ wealth. To avoid single-stock risk, consider investing in a wide range of tech-focused funds that offer diversification while profiting from emerging technologies.
Technology SPDR (XLK)
The XLK, at more than $13 billion in assets, is the largest tech fund on the planet. The XLK holds 75 stocks, so it’s diversified in at least one manner. However, because it’s market-cap-weighted, the XLK’s performance is heavily affected by top holdings Apple, Microsoft Corp. and Alphabet (GOOG, GOOGL). In fact, a full 60 percent of the portfolio’s weight is concentrated in just nine companies.
Expenses: 0.14 percent, or $14 annually per $10,000 invested
Guggenheim S&P 500 Equal Weight Technology ETF (RYT)
While the XLK’s components are weighed by market cap, the RYT is a so-called “equal weight” fund that holds all 70 of its components at similar levels. Here, SanDisk Corp. (SNDK) is the top holding at 1.86 percent, while Seagate Technology (STX) is the lightest weight at 1.01 percent — not a huge spread. The idea here is simple: If you don’t want your tech fund to be too beholden to just three or four stocks, the RYT is a much more diversified offering.
Expenses: 0.4 percent
First Trust Dow Jones Internet Index Fund (FDN)
One of many funds with a particular focus in the tech space, the First Trust Dow Jones Internet Index Fund focuses on funds that derive at least half of their revenues from the Internet. This fund does include a number of XLK holdings — Amazon.com, Facebook (FB) and Alphabet make up more than 30 percent of the fund — though it’s noticeably absent of Apple and Microsoft.
Expenses: 0.54 percent
First Trust ISE Cloud Computing Index Fund (SKYY)
The SKYY is one of the purest plays on companies dealing in cloud computing, such as Salesforce.com (CRM) and NetSuite (N). It also holds companies that have decent cloud businesses, even if they’re not the primary source of revenues, including Amazon with its Amazon Web Services. And it holds companies that simply use cloud computing in some way, such as streaming service Netflix (NFLX). So SKYY will get you invested in the cloud, but it’s far from perfectly pure exposure.
Expenses: 0.6 percent
iShares PHLX Semiconductor ETF (SOXX)
There’s also money to be made in the components powering the next great gadget. For the SOXX ETF, that translates into holdings such as Texas Instruments (TXN), Intel Corp. (INTC) and Avago Technologies (AVGO). This is a fairly thin ETF at just 30 stocks, but considering the tight focus of the fund, that’s to be expected.
Expenses: 0.47 percent
PureFunds ISE Cyber Security ETF (HACK)
Investors looking to ride the globe’s increasing need for cybersecurity software and services to fend off hackers can tap the appropriately named HACK, an ETF that holds 35 cybersecurity stocks such as Proofpoint (PFPT), Qualys (QLYS) and Vasco Data Security International (VDSI).
Expenses: 0.75 percent
Ark Web X.0 ETF (ARKW)
The ARKW is an interesting blended tech ETF that, according to the fund description, owns companies “focused on and expected to benefit from shifting the bases of technology infrastructure from hardware and software to the cloud, enabling mobile and local services,” while touching on themes like the cloud, big data and the Internet of Things. Top holdings include Athenahealth (ATHN), Red Hat (RHT) and 2U Inc (TWOU).
Expenses: 0.95 percent
Direxion Daily Technology Bull 3x Shares (TECL)
If you’re looking to make an aggressive, short-term bet on technology, consider the TECL, which aims to return (backing out fees) three times the daily performance of the S&P Technology Select sector index. In short, if the index goes up 1 percent in a given day, the fund theoretically will rise 3 percent. Just remember, though: The opportunity to triple your returns also comes with the risk of tripling your pain should things go south.
Expenses: 0.95 percent
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8 Tech Funds to Buy to Invest in the Future originally appeared on usnews.com
