Many tech stocks are pushing ahead.
Technology is undeniably one of the most dynamic sectors of the market. But within tech itself, many investors are sometimes surprised to see such a big difference in performance between companies. For every stock like cloud communications firm Twilio (ticker: TWLO), which has more than doubled in the last year, there are stocks like Snap (SNAP) that have been roughly cut in half during the same period. So how does an investor zero in on the biggest opportunities and avoid the pitfalls? These seven targeted exchange-traded funds can help, investing in specific subsectors and industries with the biggest potential.
First Trust Dow Jones Internet Index ETF (FDN)
It seems like a no-brainer, but this FDN fund gets rid of the old-school tech companies that may be falling behind and focuses only on connected companies that are part of a future where mobile devices, social media and e-commerce are the norm. Obvious names like Amazon.com (AMZN) and Facebook (FB) make the list, but other players include fintech firm Blucora (BCOR) and online brokers like E-Trade Financial Corp. (ETFC). If you want to plug directly into the growth potential of the internet, FDN helps you do that. The fund is up about 20 percent since January in a mostly flat market, showing its potential.
ETFMG Prime Cyber Security ETF (HACK)
Another high-flier in 2018 has been cyber security fund HACK, and for obvious reasons. As Americans debate the threat posed by Russian interference in the 2016 election and after the high-profile hacking of Equifax last year, there’s increased interest in this important sector. Holdings of this cyber security ETF right now include CommVault Systems (CVLT) and Carbonite (CARB), among others. Though specific in focus, HACK is a pretty big fund with more than $1 billion assets under management. The fund has gained about 15 percent since January to make it one of the best-performing ETFs on Wall Street in 2018.
iShares North American Tech-Software ETF (IGV)
Though this fund may sound a bit quirky, think of it as a way to play the software and programming side of Silicon Valley while cutting out the big legacy names that deal in hardware. Top holdings include digital documents giant Adobe Systems (ADBE), computer-assisted design firm Autodesk (ADSK) and video game studio Activision Blizzard (ATVI). Especially now that many software companies have moved toward automatic annual renewal of their services, providing a stable cash flow, this is a much safer bet for tech investors rather than relying on one firm to keep selling gadgets or servers at scale.
SPDR FactSet Innovative Technology ETF (XITK)
Another way to avoid getting bogged down in stodgy old tech names that underperform is to focus on next-generation technology, as XITK does. An obvious practical example is Netflix (NFLX), the streaming video company that continues to post amazing growth metrics and wow Wall Street. Other holdings include Autohome (ATHM), a Chinese internet stock that is taking car shopping to the internet and has doubled in the last year. This fund is a bit more risky but clearly is trying to hit home runs and not stick with the same old names that may be losing their edge.
First Trust ISE Cloud Computing Index Fund (SKYY)
Cloud computing is once again a hot trend, thanks to the amazing performance of Twilio. However, some investors still seem to think that cloud computing is just about companies storing information on the internet instead of locally on your computer. SKYY owns some of those names, like Salesforce.com (CRM). The fund unlocks the full potential of the space, however, by focusing on the back-end companies that provide cloud computing infrastructure. This includes Akamai Technologies (AKAM) and F5 Networks (FFIV), which focus on the performance and scale of cloud computing networks, and leave the content side to others.
ROBO Global Robotics and Automation ETF (ROBO)
Speaking of hot tech concepts, let’s not forget automation. From robotic manufacturing to boost productivity or self-driving cars to reshape transportation, Silicon Valley has big plans for how to remove human error and inefficiencies from many aspects of the American economy. The ROBO ETF holds companies across a wide range of industries. There’s offshore oil drilling firm Oceaneering International (OII) to barcoding company Zebra Technologies Corp. (ZBRA), which makes it easy to track inventory in a warehouse, patients in a hospital and just about anything else. Though there’s no big fund manager behind ROBO, with $2 billion in assets under management this is not just a niche fund.
Guggenheim China Technology ETF (CQQQ)
These funds so far have been dominated by U.S. stocks. But in many ways, the real growth may come from overseas — particularly in the fast-growing economy of China. That’s what this Guggenheim fund specializes in, via popular U.S. listed names like Alibaba Group Holding (BABA) and smaller companies listed in Hong Kong like Meitu, which has software akin to Photoshop and image-sharing apps like Instagram and Snapchat. The fund is a bit top-heavy in the big names, like Alibaba and Baidu (BIDU), with about 40 percent of the fund in the top five holdings. However, CQQQ is worth a look if you want to invest in Chinese tech.
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7 ETFs to Target Tech originally appeared on usnews.com
