Energy led last year, but will tech lead going forward?
While the energy sector was a success story in 2022, the performance of the tech sector was downright tragic. Among some of the biggest losers last year were once-loved names like chipmaker Nvidia Corp. (ticker: NVDA), electric vehicles icon Tesla Inc. (TSLA) and Facebook parent Meta Platforms Inc. (META) — all of which slumped 50% or more last year. But as the old saying goes, past performance is not an indicator of future returns. And after the bloodbath, many investors have started to wonder if there are some beaten-down bargains in tech that could outperform in 2023. If you’re thinking long term or if you’re simply aggressive and want a swing-trade success to start the year, here are some leading tech ETFs to consider.
Invesco QQQ Trust (QQQ)
Though not technically a tech ETF, this $150 billion fund from Invesco is one of the five largest exchange-traded products in the U.S. and an incredibly liquid way to invest in the top technology stocks of 2023. It’s not exclusively a sector fund, as it’s benchmarked to the Nasdaq-100, which holds the biggest 100 firms on Nasdaq exchange. But since that index has always been very tech-heavy and excludes traditional U.S. stocks like JPMorgan Chase & Co. (JPM) or Johnson & Johnson (JNJ) that are on the NYSE, the result is a fund that’s biased toward tech. Specifically, 47% of assets are in the tech sector versus less than 23% for the S&P 500. If you want to lean into tech in 2023 but not dive in headfirst, QQQ is a good option.
Vanguard Information Technology ETF (VGT)
The largest truly sector-specific technology ETF is VGT, with some $39 billion in assets at present. But just as QQQ has its quirks by also including some stocks outside Big Tech mainstays, VGT goes the other way with a massive prioritization of larger tech stocks. Thanks to its weighting system, where the bigger companies represent more of the portfolio, it has nearly 60% of its total assets in the top 10 positions alone — with Apple Inc. (AAPL) and Microsoft Corp. (MSFT) at 39% between the two of them. On the plus side, this leading technology ETF is cheap, charting just 0.10% annually in fees or $10 on every $10,000 invested. But clearly you’re not getting a lot of sophistication here.
VanEck Semiconductor ETF (SMH)
After the meltdown of global supply chains and a crunch for chipmakers during the pandemic, semiconductor stocks have been an area of increasing interest for investors despite recent underperformance. As a result, this leading chipmaker-focused fund from VanEck has swelled to more than $6 billion in assets even as traders have abandoned other tech ETFs. Top components of this fund include Taiwan Semiconductor Manufacturing Co. Ltd. (TSM), Nvidia and Broadcom Inc. (AVGO). If you’re looking to play this specific corner of the tech sector in 2023, SMH is the leading semiconductor ETF to do so.
First Trust Nasdaq Cybersecurity ETF (CIBR)
Another tactical tech ETF that has been in favor lately is CIBR, a fund that has won over many investors both because of the long-term megatrend of cybersecurity spending and short-term risks brought on by the Russian invasion of Ukraine. While so far we haven’t seen signs of serious cyberwarfare disruptions in the West, just two months ago, Russian military-linked hackers launched ransomware attacks in Poland and Ukraine. This shows the real risks to businesses, governments and consumers right now — and a real need for cybersecurity companies in 2023. CIBR is led by stocks like Palo Alto Networks Inc. (PANW) and Fortinet Inc. (FTNT), along with diversified enterprise technology companies, such as Cisco Systems Inc. (CSCO), that also have robust security offerings.
iShares Expanded Tech-Software Sector ETF (IGV)
Another more focused fund is this software-specific offering from iShares that looks to get outside hardware or tangentially tech-related plays. Its top holdings are creativity software provider Adobe Inc. (ADBE), customer software king Salesforce.com Inc. (CRM) and enterprise tech giant Oracle Corp. (ORCL). Microsoft also makes an appearance, but it’s noteworthy that this tech fund is not primarily formulated based on the size of components. If you don’t want the usual consumer hardware and chipmaker names crowding out your exposure to software stocks, the roughly $4 billion IGV is worth a look.
iShares Global Tech ETF (IXN)
Looking to get beyond the usual domestic stocks? IXN offers a global approach to technology, with about 20% of assets located outside the U.S. You’ll rely on many of the same old Silicon Valley megacaps like Apple Inc. that populate the leading tech stocks. But you’ll also get Korean powerhouse Samsung Electronics Co. Ltd. (SSNLF), along with lesser-known Chinese hardware companies and leading tech companies across Europe. While the big dogs in the U.S. are indeed dominant, there’s something to be said for adding a layer of geographic diversification to the mix if you’re interested in pursuing the opportunities tech offers in 2023.
KraneShares CSI China Internet ETF (KWEB)
Interestingly enough, one of the most specific funds on this list is also one of the most popular. This China-only fund that comprises internet-focused stocks in the region commands more than $7 billion in assets right now. Admittedly, KWEB comes with more risk as it has a very tactical approach. China’s tech sector tends to be insulated in many ways from the U.S. and Europe — in fact, companies like Alphabet Inc. (GOOG, GOOGL) barely exist in the region thanks to challenges with government officials and censorship there. However, if we see big growth in this region, KWEB could tap into that success in ways Silicon Valley tech stocks simply can’t offer. Top holdings right now are Alibaba Group Holding Ltd. (BABA), Tencent Holdings Ltd. (TCEHY) and Meituan (MPNGY), to name a few. It’s more aggressive, to be sure, but this KraneShares fund could be the best way to tap into Asia’s tech growth if things turn around in the region.
7 best tech ETFs to buy for 2023:
— Invesco QQQ Trust (QQQ)
— Vanguard Information Technology ETF (VGT)
— VanEck Semiconductor ETF (SMH)
— First Trust Nasdaq Cybersecurity ETF (CIBR)
— iShares Expanded Tech-Software Sector ETF (IGV)
— iShares Global Tech ETF (IXN)
— KraneShares CSI China Internet ETF (KWEB)
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Update 01/10/23: This story was published at an earlier date and has been updated with new information.