It’s been a bumpy ride in the stock market lately. A poor jobs report and global market sell-off sent stocks into a tailspin on Aug. 5. Unfortunately, this only continued the rough summer for the technology sector.
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After reaching an all-time high in mid-July, the Nasdaq-100 Technology Sector Index began a steady decline fueled by disappointing earnings and concerns that valuations may have risen too high. But drawdowns aren’t all bad news. In fact, some finance experts would say this is the best time to be a tech investor, as you can buy for less.
Technology has been a resilient sector and is likely to always be relevant given our current world, says Jason Werner, accredited investment fiduciary and founder of 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, 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 |
| Technology Select Sector SPDR ETF (ticker: XLK) | 0.09% |
| Fidelity MSCI Information Tech ETF (FTEC) | 0.084% |
| Vanguard Information Technology ETF (VGT) | 0.1% |
| iShares U.S. Tech Breakthrough Multisector ETF (TECB) | 0.3% |
| VanEck Semiconductor ETF (SMH) | 0.35% |
| iShares Global Tech ETF (IXN) | 0.41% |
| ProShares Ultra Technology (ROM) | 0.95% |
Technology Select Sector SPDR ETF (XLK)
Ranked the No. 1 technology ETF by U.S. News and earning five stars from Morningstar, the Technology Select Sector SPDR ETF is one to watch. It comes in with a low 0.09% expense ratio. That means you’ll pay just $9 annually for every $10,000 you invest.
XLK tracks the performance of the technology companies in the S&P 500 and narrows the index of 500 companies down to only 67 holdings. This includes firms in all aspects of the tech industry, from hardware and storage providers to semiconductors and IT services.
Since it’s an S&P 500 tech fund, you’ll see many familiar names in the portfolio, such as Microsoft Corp. (MSFT) and Apple Inc. (AAPL). The top 10 holdings cumulatively account for nearly 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 over 20% in the past 10 years and over 56% in 2023 alone. Just remember that favorites can fall out of favor at any time. Diversification is still the most reliable path to successful long-term investing.
Fidelity MSCI Information Tech ETF (FTEC)
The Fidelity MSCI Information Tech ETF is ranked the second-best technology ETF by U.S. News & World Report. It’s also favored by Morningstar analysts, who give it five stars and a silver badge. These badges indicate the research team has a high conviction the fund will outperform over a market cycle.
It has certainly been a star performer over the past market cycle, returning over 53% in 2023 and over 11% year to date. FTEC has held up significantly better than the overall Morningstar tech category in 2024, which has returned only 7% year to date. Coupled with its low expense ratio of 0.084%, FTEC can be a real boost to your portfolio.
The fund tracks the MSCI USA IMI Information Technology Index, which covers the entire U.S. IT sector. This means it holds lesser-known tech companies, like digital lender MeridianLink Inc. (MLNK) and semiconductor and fiber laser producer nLight Inc. (LASR). However, the big boys still dominate the fund with 61% in the top 10 names.
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Vanguard Information Technology ETF (VGT)
Perhaps the largest truly sector-specific technology ETF is VGT, with $87.6 billion in assets. Like XLK it’s quite top heavy. Over 60% of the fund’s total assets are in the top 10 positions alone.
On the plus side, this leading technology ETF is cheap, charging just 0.1% annually in fees. 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.
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, such as 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 (12.8%), health care (12.3%), financials (8.4%), consumer discretionary (6.2%), real estate (2.6%) and even industrials (1.9%).
With about 170 holdings, TECB is also less concentrated than other funds on this list. The top 10 account for 39% of the portfolio with the largest holding, AAPL, at only 4.5%.
Morningstar’s analysts look favorably on the fund, giving it five stars and a gold badge.
VanEck Semiconductor ETF (SMH)
Another five-star tech fund by Morningstar’s standards is the VanEck Semiconductor ETF. And this one blows many other funds out of the water in terms of year-to-date performance at over 28%. However, it also lost more than 33% in 2022, so don’t expect every year to be a winner.
SMH tracks the MVIS US Listed Semiconductor 25 Index, which in turn tracks the 25 largest and most liquid companies in the semiconductor business that trade on the U.S. stock market.
Top holdings include Nvidia Corp. (NVDA), Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) and Broadcom Inc. (AVGO). Nearly three-quarters of the portfolio is in the top 10 names, so once again, watch out for concentration risk. But if you want to place a bet on semiconductors, this could be the fund to do it.
iShares Global Tech ETF (IXN)
Technological advances aren’t limited to the U.S., and yet many tech ETFs end up concentrated here by holding predominantly North American names. Not so with IXN. It takes a much more holistic view by holding electronics, computer software and hardware and informational technology companies from around the world.
At least in theory. In reality, the fund is still dominated by U.S. names, which represent over 80% of the portfolio. But that still leaves 20% for other regions, such as Taiwan, Japan, South Korea and Germany.
Morningstar gives it four stars and a silver badge thanks to its “sound investment process and strong management team.”
ProShares Ultra Technology (ROM)
This is a “tech ETF for those who have a large appetite for returns,” says Ron Tallou, founder and owner of Tallou Financial Services. It aims to double the daily returns of the S&P Technology Select Sector Index through leverage.
It’s important to note that leverage is a two-way street, Tallou says. If the index returns 15% for the year, ROM would return 30%. But if the index loses 15%, ROM would lose 30%.
It’s also important to highlight the fact that it aims to double the index’s returns on a daily basis. Holding the fund for longer periods may lead to even more extreme results.
ROM gets Morningstar’s highest risk rating of 100. So buckle up if you plan to get on this ride.
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7 Best Tech ETFs to Buy in 2024 originally appeared on usnews.com
Update 08/12/24: This story was previously published at an earlier date and has been updated with new information.
