The technology sector is off to a strong start in 2024 with the Nasdaq-100 Technology Sector Index up nearly 10% year to date. This is hardly a surprise with the rise of artificial intelligence and increasing global dependence on technology.
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Technology has been a resilient sector and is likely to always be relevant given our current world, says Jason Werner, founder and accredited investment fiduciary at Werner Financial. “Also, tech companies have been known for their rapid growth structures, making them attractive for investors to add into their portfolios.”
But not all tech companies succeed, and trying to cherry-pick winners can be a loser’s game.
For simplicity and the assurance that you won’t miss out on all the fun, exchange-traded funds, or ETFs, allow you to hold many of the biggest names in Big Tech in a single ticker. With the capacity to hold dozens or even hundreds of tech stocks, ETFs can be a smart alternative to stock picking even in the best of times. But you still need to do your research to find the best tech ETF for your portfolio.
While technology is likely to continue growing in our world, not all funds are guaranteed the same success, Werner says. “We encourage investors to do their due diligence and research specific funds, as well as their underlying holdings before moving forward.”
If you’re thinking the tech future is still bright, here are some leading tech ETFs to consider in 2024:
| Tech ETF | Expense Ratio | Year-to-date Performance* |
| Vanguard Information Technology ETF (ticker: VGT) | 0.10% | 2.1% |
| Technology Select Sector SPDR ETF (XLK) | 0.09% | 2.3% |
| iShares U.S. Tech Breakthrough Multisector ETF (TECB) | 0.40% | 5.6% |
| First Trust Nasdaq Cybersecurity (CIBR) | 0.59% | -1.8% |
| First Trust Dow Jones Internet ETF (FDN) | 0.52% | 5.5% |
*As of April 18 close.
Vanguard Information Technology ETF (VGT)
Perhaps the largest truly sector-specific technology ETF is VGT, with some $77.6 billion in assets. Due to its market-weighting system, where bigger companies represent more of the portfolio, 60% of the fund’s total assets are in the top 10 positions alone — with Microsoft Corp. (MSFT) representing nearly one-fifth of the portfolio. MSFT and Apple Inc. (AAPL), the second largest holding, account for more than 30% between the two of them.
On the plus side, this leading technology ETF is cheap, charging just 0.1% annually in fees, or $10 on every $10,000 invested. But clearly you’re not getting a lot of sophistication here.
That said, Morningstar’s research team is bullish on this fund, giving it five out of five stars and a gold medal, indicating the researchers have the most conviction that VGT will outperform a relevant index or most peers over a market cycle. In fact, VGT has the distinction of being the only technology fund to earn both five stars and a gold badge from the analysts.
It also gets the highest sustainability rating for having some of the lowest environmental, social and governance, or ESG, risk in the technology equity sector, according to Morningstar. The analysts also note the low carbon risk score as a “key area of strength” for the fund, along with its very low fossil fuel exposure.
Technology Select Sector SPDR ETF (XLK)
Another big name in technology that gets top sustainability marks from Morningstar is the Technology Select Sector SPDR ETF. It’s also neck-in-neck with VGT in terms of fees and year-to-date performance.
XLK tracks the performance of the technology companies in the S&P 500 and narrows the index of 500 companies down to only 65 holdings. This includes firms in all aspects of the tech industry, from hardware and storage providers to semiconductors and IT services. That said, it holds predominantly software companies, which represent about 40% of the portfolio. This is followed by semiconductors and equipment companies at nearly 27% of the portfolio and technology hardware, storage and peripherals at over 21% of the portfolio.
Since it’s an S&P 500 tech fund, you’ll see many familiar names in the portfolio. Microsoft tops the list, accounting for more than 23% of the fund, followed by Apple at 20% of the fund. The top 10 holdings cumulatively account for more than two-thirds of the total portfolio, so consider yourself warned that if you opt for this fund, you’ll be making a fairly concentrated bet.
That bet has paid off over the past 10 years, thanks to tech’s favoritism in the stock market. XLK returned more than 20% in the past 10 years and nearly 40% over the past 12 months. Just remember that favorites can fall out of favor at any time. Diversification is still the most reliable path to successful long-term investing.
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iShares U.S. Tech Breakthrough Multisector ETF (TECB)
Part of the fun of technology is how fast it moves. It seems like only yesterday the first cellphone debuted, and now we have computers in our pockets. If you want to invest in the cutting edge of technology, a fund like the iShares U.S. Tech Breakthrough Multisector ETF is the one for you.
TECB invests in companies that are poised to benefit from breakthrough technologies. These include all the topics that keep the tech media abuzz, like robotics, AI, cybersecurity and even genomics and immunology. This results in a fund that, while still predominantly IT (at over 55% of the portfolio), gives you exposure to the communication sector (nearly 14% of the portfolio), health care (11.5%), financials (8%), consumer discretionary (6.6%), real estate (2.3%) and even industrials (1.8%).
The biggest names in the portfolio are still ones you’ll find in other tech ETFs. Nvidia Corp. (NVDA), Meta Platforms Inc. (META) and Amazon.com Inc. (AMZN) top the list. But right below these is health care company Merck & Co. Inc. (MRK) and not far below that are Visa Inc. (V) and Mastercard Inc. (MA). With 173 holdings in all, TECB is also less concentrated than other funds on this list. The top 10 account for just over 43% of the portfolio with the largest holding, NVDA, at only 6.6%.
Morningstar’s analysts look favorably on the fund, giving it a gold badge to indicate they have a high conviction it will outperform its index or most peers in the near term. It also gets four stars overall, though only a three out of five globe sustainability rating.
First Trust Nasdaq Cybersecurity (CIBR)
If you want to narrow your focus to a particular area within the technology industry, cybersecurity is a good choice.
“Cybersecurity has a long-term macro bullish thesis as it becomes more and more important, especially from an enterprise standpoint as we become more and more dependent on technology,” says Daniel Milan, investment advisor representative and managing partner at Cornerstone Financial Services in Southfield, Michigan.
For cybersecurity exposure, he likes CIBR, which invests in companies involved in cybersecurity within the tech and industrials sector. It only holds companies classified as cybersecurity companies by the Consumer Technology Association that have a minimum market capitalization of $500 million and a minimum three-month daily dollar trading volume of $1 million. This criteria results in a portfolio of only 30 stocks, more than half of which are software companies.
With more than $6.6 billion in assets itself, CIBR is the largest fund in the cybersecurity sector that provides strong liquidity, Milan says.
First Trust Dow Jones Internet Fund (FDN)
New technology startups seem to spring to life every day, but no one can predict which ones will live on. For this reason, it can make sense to focus on larger, more well-established companies within the tech industry. To this end, Milan recommends FDN.
“This fund provides broad exposure to technology companies with a tilt toward large-cap companies,” he says. “This provides broader exposure to the overall internet (and) tech sector than more focused funds and thus is a strong option for long-term investors looking to participate in the continued growth of our reliance on technology.”
FDN’s portfolio includes 41 companies, many of which are big names you’ll likely recognize, such as Amazon, Meta Platforms and Google’s parent, Alphabet Inc. (GOOG, GOOGL). Companies considered for this selective portfolio are ranked based on their three-month market capitalization and three-month average trading volume.
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Update 04/19/24: This story was previously published at an earlier date and has been updated with new information.
