These are great ways to invest in technology.
Most investors are fascinated with tech stocks. And why not? The information technology segment is the largest group within the S&P 500 index, with $9.8 trillion of the benchmark’s overall $46.6 trillion in market cap — good for more than 20 percent of its value. Whether its mega corporations like Apple (ticker: AAPL) or Amazon.com (AMZN) or small upstarts in emerging fields like cybersecurity and cloud computing, there’s always a big story somewhere in tech. There are a host of technology-focused ETFs out there, including both broad-based funds for diversified investors and tactical funds for those looking to play a more focused slice of the sector.
Technology Select Sector SPDR Fund (XLK)
This broad technology ETF is one of the most popular ways to play the sector among all ETFs, with a massive $22 billion under management. Including both the technology and telecom segments of the S&P 500, the 75 components are a who’s who list of the industry with the top of the list including Apple, Microsoft Corp. (MSFT) and Facebook (FB). Keep in mind, however, that this fund is weighted heavily toward Apple, which represents a staggering 16 percent of the portfolio. This bias is good when big stocks like these are doing well, but can be risky if things take a turn for the worse.
Vanguard Information Technology ETF (VGT)
Right beside the XLK is this Vanguard technology sector play that consists mostly of the same stocks, and also boasts more than $20 billion in total assets. However, there are a few subtle differences in the makeup of this fund — such as a more robust list of about 350 picks and the inclusion of payments processors Visa (V) and MasterCard (MA) in the top seven holdings. And as is typical of a Vanguard fund, the expenses are dirt-cheap at just 0.1 percent annually, or $10 on every $10,000 invested. That’s a small price to pay for a one-stop shop.
Invesco S&P 500 Equal Weight Technology ETF (RYT)
If you’re concerned about either of these tech funds putting too much of your money behind too few names in the portfolio, then consider this equal-weight approach to the sector by Invesco. As the name implies, each holding targets the same percentage of the portfolio via regular rebalancing; that’s about 1.4 percent or so given the 72 total holdings. At this writing, the top holding in RYT is chipmaker Advanced Micro Devices (AMD) at about 1.9 percent, compared with those prior funds where Apple represented a much larger share.
First Trust NASDAQ-100-Technology Sector Index Fund (QTEC)
Getting a bit more specialized, QTEC is focused on only the 37 tech stocks listed in the Nasdaq 100 index. This includes top names like Apple and Amazon but excludes a few names such as enterprise software giant Oracle Corp. (ORCL) that are listed on the New York Stock Exchange instead. Also interesting is that this fund is targeted at equal weight like the aforementioned Invesco fund, though it only rebalances once per quarter and thus can be a bit more flexible in its holdings.
First Trust Dow Jones Internet Index ETF (FDN)
Another First Trust fund that takes a different approach to tech involves looking beyond some of the legacy technology and software names and getting serious about internet-oriented businesses. This puts heavyweights like Amazon and Facebook at the top of the list, and fills out the holdings with other players such as online travel company Expedia (EXPE) and mobile food ordering platform GrubHub (GRUB). This segment of technology is seeing the biggest growth potential thanks to e-commerce, streaming video, mobile technology and other megatrends. Cutting out some of the old-school tech players and getting right to the business of the internet may be a wise move for investors.
iShares North American Tech-Software ETF (IGV)
Another sliver of tech worth watching involves the big business of software that continues to make big bucks for tech firms. In the age of “software as a service” and regular subscription billing for products instead of one-time expenses, software licenses are perhaps more lucrative now than ever before. Top holdings of IGV that exemplify this trend are digital documents giant Adobe Systems (ADBE), computer-assisted design firm Autodesk (ADSK) and video game studio Activision Blizzard (ATVI). The stable cash flow generated from these providers with established software brands allows for pretty consistent returns.
ETFMG Prime Cyber Security ETF (HACK)
Digging deeper into software and services, cybersecurity is an emerging subsector of technology that is increasingly of interest for many investors. While the internet has plenty of benefits, a host of organizations are spending big on protecting themselves in a digital age. That includes governments worried about bad actors, to Fortune 500 companies that host the personal information of millions of Americans, to small organizations that are concerned about lost business if someone hacks their system. HACK has been a high-flier recently, rising 20 percent so far this year and surging roughly 50 percent across the last 24 months because of these big picture trends.
First Trust ISE Cloud Computing Index Fund (SKYY)
Another section of the tech sector worth a look is cloud computing. SKYY includes both the solutions and software companies many investors are familiar with, such as marketing platform Salesforce.com (CRM), and companies like Akamai Technologies (AKAM) and F5 Networks (FFIV) that maintain cloud computing networks themselves. While SKYY has a limited portfolio of just 30 picks, no position represents more than about 5 percent of the total assets. That makes it a fairly diversified fund even if it has a very narrow focus on the business of cloud computing versus broader technology.
iShares PHLX Semiconductor ETF (SOXX)
Of course, you could just go with hardware instead of all these software and internet stocks. That’s what SOXX offers, with a fund that contains 30 of the biggest hardware companies in technology such as Qualcomm (QCOM), Nvidia Corp. (NVDA), Texas Instruments (TXN) and Intel Corp. (INTC). It’s safe to say that just about everything has a microchip in it these days, from cars to phones to even seemingly mundane appliances like toaster ovens and thermostats. The chip-making game is admittedly increasingly driven by high volumes and low margins, but these 30 heavyweights represent a huge share of all chips used across a host of applications.
ROBO Global Robotics and Automation ETF (ROBO)
One of the most interesting funds out there is ROBO, which allows investors to play the megatrend of automation. This doesn’t just include robots used in manufacturing, but also a host of other applications that are taking people out of the equation to save costs and cut down on human error. That means the fund includes both industrial mainstays like Rockwell Automation (ROK) as well as specialized companies like offshore oil drilling firm Oceaneering International (OII) and barcoding company Zebra Technologies Corp. (ZBRA) that allows companies to track their assets and inventory.
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10 Great Tech ETFs to Buy Now originally appeared on usnews.com
