Most investors have heard a lot about the “FAANG” stocks — Facebook (Nasdaq: FB), Amazon.com ( AMZN), Apple ( AAPL), Netflix ( NFLX) and Google-parent Alphabet ( GOOG, GOOGL) — and for good reason. Technology stocks have dominated the market in 2017.
Collectively, these five heavyweights command more than $3 trillion in market capitalization right now, and account for about 13 percent of the entire Standard & Poor’s 500 index.
And perhaps more important, each one is up between 20 and 50 percent since Jan. 1.
[See: U.S. News & World Report’s 10 Top-Ranked ETFs.]
The power of the tech sector in 2017 is self-evident. However, what goes up often comes crashing down — and purchasing individual tech stocks is no sure-thing. Even entrenched Big Tech names can be volatile, and buying at the wrong time can be a costly mistake.
Thankfully, if you want to play the big run in Big Tech now there are other options than individual stocks. A number of high-quality ETFs offer investors a way to tactically play the tech sector with diversification and lower risk.
Here are a few such ETFs if you want to play tech right now:
First Trust Dow Jones Internet Index Fund (FDN). The first and most obvious option for those looking to play the tech sector now is the First Trust Dow Jones Internet Index Fund. As the name implies, this fund invests primarily in tech companies that have an internet focus. And as a result, the top 10 holdings of this ETF include four of the five aforementioned FAANG stocks.
And besides, what better way to play the promise of tech right now than to invest in a wide group of companies riding the internet to success? FDN holds a host of powerful consumer companies like travel giant Expedia ( EXPE), cloud-computing names like Salesforce.com ( CRM) and even upstart tech companies like small-cap fintech company Blucora ( BCOR).
If you want to grab a little piece of all the big names in tech, this internet-focused fund is a great choice.
Robo Global Robotics & Automation Index ETF (ROBO). Automation is an unstoppable force in the 21st century. According to the Robotic Industries Association, orders for robot-assisted “assembly applications” surged 61 percent while food and consumer goods orders increased 32 percent. All told, last year 34,606 robotic arrays worth nearly $2 billion were ordered in North America alone.
But rather than try to pick one single company filling these automation orders, why not simply buy a broad-based exchange-traded fund that covers the whole megatrend?
That’s what you get in ROBO. This ETF is focused on companies that make most of their revenue from automation technologies. That includes fast-growing companies like drone manufacturer AeroVironment ( AVAV) as well as entrenched industrial automation companies like Siemens.
[See: High-Tech Investing: 7 Sectors to Watch.]
SPDR S&P Biotech ETF (XBI). One of the most dynamic segments of the stock market currently is biotechnology, where high-tech medical companies hunt for cures to cancer and Alzheimer’s. According to the Stern School of Business at NYU, the biotech sector has seen its net income grow at a compound annual growth rate of more than 12 percent across the last five years.
But while a few biotech names make big headlines with breakthrough drugs or big-ticket buyouts, anyone who has watched the sector for long enough knows that there are just as many stocks that crash and burn.
That’s where XBI comes in. This fund is equal weight and diversified across many smaller names in the space, rather than focusing investment on a small number of stocks. This means investors in XBI see a less bumpy ride than those who play individual stocks in this dynamic corner of the market.
PureFunds ISE Cyber Security ETF (HACK). Whether it’s talk of Russian interference in the 2016 election or the recent data breach at Equifax ( EFX), the problems that can result from an unsecured IT system should be clear to everyone in this digital age. But while the risks of hacking are real for businesses and consumers in 2017, the investment potential of companies in this sector is also tangible.
After all, a recent report from IT firm Gartner predicted cybersecurity spending will surge 7 percent to more than $86 billion in 2017 — with even more growth expected next year.
Rather than try to pick individual winners in cybersecurity, investors can simply purchase the PureFunds’s HACK ETF to tap into this widespread growth for the entire sector.
Technology Select Sector SPDR Fund (XLK). Of course, one of the basic premises behind ETF investing is that you’re better off buying a broad-based investment than trying to outthink the market. So while you can theoretically tap into outsize profits by a tactical investment in technology, you also may do more harm than good if you get too meddlesome.
[See: 10 Great Tech ETFs That Stay Under the Radar.]
So why not simply buy the biggest names in tech by buying the most popular tech ETF on the planet? The XLK holds three of the FAANG stocks in its top five positions. And more important, if you can name a Big Tech stock, it is probably on the list of holdings in this broad-based sector fund. That means as long as technology in general is growing and thriving — something that seems a foregone conclusion in 2017 — then so is this ETF.
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5 ETFs to Play the Tech Revolution of 2017 originally appeared on usnews.com
