Investors lessen the risks of tech with these ETFs.
There has been a lot of attention on technology stocks lately, both positive and negative. While the headlines are noteworthy, they actually shouldn’t be that much of a surprise. Tech has long been one of the most dynamic corners of the stock market, full of huge potential but also big risks. One of the easiest ways to mitigate the risks is to play a wide swath of the sector via an exchange-traded fund instead of picking companies. By spreading your investment, you will avoid the potential for major losses and also share in the broad success of the sector. Here are 10 interesting ETFs to consider.
PowerShares QQQ (ticker: QQQ)
Not only is this PowerShares fund one of the largest tech-focused ETFs, it’s one of the largest exchange-traded products on Wall Street with a massive $62 billion in assets. Benchmarked to the Nasdaq 100 index, this is chock full of the biggest tech names listed in the U.S., including Apple (AAPL), Amazon.com (AMZN), Microsoft Corp. (MSFT) and Facebook (FB). It’s also worth noting that the QQQ is not a true tech fund, as you also get exposure to other large companies listed on the Nasdaq. Almost two thirds of the fund is invested in information technology.
Technology Select Sector SPDR Fund (XLK)
Another megafund worth looking at is the $20 billion XLK ETF, which invests across roughly 70 of the biggest names in technology — including the big guys held by QQQ without those outside the tech sector. One potential drawback, however, is this list relies on a small group of big names. Apple and Microsoft represent roughly 25 percent of the portfolio, and the top 10 holdings represent 60 percent. That means some of the lesser components may not matter much to the long-term performance of this ETF. Of course, with the XLK up about 24 percent in the last 12 months, that may not necessarily be a bad thing.
Vanguard Information Technology ETF (VGT)
A slightly broader way to play technology is this Vanguard ETF, benchmarked to an index of nearly 400 holdings. The same big guys appear at the top of the list here as everywhere else, and admittedly they are still a large share of the portfolio. But with hundreds of holdings instead of a few dozen, the ride should be smoother than in some of the other ETFs. And of course, you’ll get the low fee structure associated with any Vanguard fund. An expense ratio of 0.1 percent adds up to just $10 annually on every $10,000 invested. That’s an incredibly cheap way to make a tactical bet on tech.
Guggenheim S&P 500 Equal Weight Technology ETF (RYT)
If top-heavy tech funds don’t float your boat, then consider this equal weight Guggenheim offering. RYT’s asset manager has carved out an interesting niche by offering a bunch of index funds that rebalance holdings regularly to ensure no single holding is ever significantly more important than another. The ETF holds the 70 biggest tech companies in the Standard & Poor’s 500 index, and then strives to keep each at just under 1.5 percent weighting. The downside is if one company breaks out, you won’t see the surge as much. But if just one or two big U.S. tech stocks take it on the chin, you won’t be overly damaged.
iShares Global Tech ETF (IXN)
Big U.S. tech companies aren’t the only players out there. In fact, some of the top performers over the last few years have been in Asia, including China’s Tencent Holdings and Alibaba Group Holding (BABA). This iShares fund gives you exposure to this international tech scene. Admittedly, more than 70 percent of assets are allocated in U.S. corporations, since the philosophy of this fund is to chase the biggest names in the world. However, the presence of Korea’s electronics giant Samsung and Japan’s iconic video game publisher Nintendo ensures you won’t miss out on any big tech trends.
Guggenheim China Technology ETF (CQQQ)
If you really want to go for growth abroad, you may not want to worry too much about entrenched U.S. corporations. That’s where this Guggenheim fund comes in, with a 100 percent allocation toward the fast-growing Chinese technology sector. Popular U.S.-listed names like Alibaba and Tencent lead the list, along with other names like Baidu (BAIDU) you may be familiar with. But there are also a host of nearly unknown companies. Investors who either aren’t comfortable doing the research on Chinese stocks or simply don’t have access to trade these foreign-listed tech names can broaden their global tech exposure pretty easily with this one fund.
Emerging Markets Internet & Ecommerce ETF (EMQQ)
While China’s tech sector is hot, there are other emerging markets where there is equal upside for adoption of 21st century technology. That makes the boutique EMQQ ETF worth a look as a way to invest in the broad growth of tech in less-developed nations. You’ll find Chinese names like Alibaba near the top of the list, but also South American e-commerce powerhouse Mercadolibre (MELI). There are certainly big risks in investing in emerging markets at any time, let alone in a high-octane sector like tech. But, as the world gets more wired and more dependent on tech, this aggressive fund could pay off in a big way.
SPDR S&P Semiconductor ETF (XSD)
Another tactical investment worth a look is the XSD fund focused on the semiconductor sector. While there isn’t as much fanfare around the boring industry of chipmaking, there has certainly been plenty of attention from Wall Street as this universe of semiconductor companies gets smaller and smaller. Across roughly two years, this corner of tech has seen almost a dozen mergers to tally over $100 billion in total value, including the megamerger between Broadcom and Avago Technologies (AVGO). As consolidation continues, smaller companies are sure to be purchased for a premium. That means the potential of an instant pop in the XSD ETF as these companies are acquired.
ROBO Global Robotics and Automation ETF (ROBO)
In contrast to the mature semiconductor industry that is likely to see growth via buyouts and efficiencies, the fast-growing automation industry provides potential for outsized gains as companies of all sizes look to cut out human workers to save costs. If you want to invest in this trend, the ROBO ETF is a perfect choice. The fund holds top automation names from medical device manufacturer Intuitive Surgical (ISRG) to Japanese manufacturing robot maker Keyence Corp.
PureFunds ISE Cyber Security ETF (HACK)
Another area of continued growth in a digital age is cybersecurity. After Russia’s interference in the 2016 U.S. election and a host of high-profile security breaches over the last few years, the need for robust cybersecurity at organizations of all sizes is clear. HACK is the pre-eminent cybersecurity fund on Wall Street, with more than $1 billion in assets. It allows investors to play a wide array of stocks in the sector including big guys like Cisco Systems (CSCO), as well as emerging players such as Palo Alto Networks (PANW) that have more risk but also much more growth potential.
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10 of the Best Tech ETFs to Own originally appeared on usnews.com
