It’s been a bumpy ride for tech investors lately. 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 tech refused to stay out of favor for long, pulling a short rebound in August only to have things wobble to and fro since then.
[Sign up for stock news with our Invested newsletter.]
Drawdowns aren’t all bad news, though. 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 |
| Vanguard Information Technology ETF (ticker: VGT) | 0.1% |
| iShares U.S. Tech Breakthrough Multisector ETF (TECB) | 0.3% |
| Technology Select Sector SPDR ETF (XLK) | 0.09% |
| Fidelity MSCI Information Tech ETF (FTEC) | 0.084% |
| Fidelity Cloud Computing ETF (FCLD) | 0.39% |
| SPDR NYSE Technology ETF (XNTK) | 0.35% |
| iShares Future Cloud 5G and Tech ETF (IDAT) | 0.47% |
Vanguard Information Technology ETF (VGT)
Perhaps the largest truly sector-specific technology ETF is VGT, with $77.5 billion in assets. It’s also the most highly regarded tech fund by Morningstar’s analysts, who give it both five stars and a gold badge, indicating they have the highest conviction the fund will outperform a relevant benchmark of its peers over a market cycle. VGT is the only technology ETF to earn both these accolades.
This leading technology ETF is also one of the more inexpensive offerings, charging just 0.1% annually in fees. That said, you’re not getting a lot of sophistication here. As a passive fund, it simply tracks the MSCI US Investable Market Information Technology 25/50 Index, which aims to track U.S. tech stocks of all sizes. This leads to a portfolio of 317 stocks, but not the most diverse of offerings. The top 10 names represent nearly 60% of total assets with over 30% in Apple Inc. (AAPL) and Nvidia Corp. (NVDA) alone.
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 cell phone 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 56% of the portfolio), gives you exposure to the communication sector (12.8%), health care (11.4%), financials (8.4%), consumer discretionary (6.4%), 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 40% of the portfolio with the largest holding, AAPL, at only 4.4%.
Morningstar’s analysts look favorably on the fund, giving it four stars and a gold badge.
Technology Select Sector SPDR ETF (XLK)
Ranked the No. 1 technology ETF by U.S. News and earning five stars and a silver badge (indicating a high conviction the fund will outperform) 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 69 holdings. This includes firms in many 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 Apple and Microsoft Corp. (MSFT). The top 10 holdings cumulatively account for 62% 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.
[7 Dividend Kings to Buy and Hold Forever]
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.
It has certainly been a star performer over the past market cycle, returning over 53% in 2023 and over 22% year to date. FTEC has held up significantly better than the overall Morningstar tech category in 2024, which has returned only 15% 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 names like Apple and Nvidia still dominate the fund, with 61% in the top 10 names.
Fidelity Cloud Computing ETF (FCLD)
Tech can be a broad term, sort of like calling someone American rather than Texan. If you want to place a more targeted bet than the previous funds provide, FCLD could be the one for you.
The cloud computing market is expected to grow at a rate of 21.2% per year between 2024 and 2030, according to Grand View Research. FCLD could be well-positioned to benefit from this growth. The fund invests in a global swath of companies of all sizes that provide products or services to support the increased adoption of cloud computing.
Despite its broad investment objective, the fund’s portfolio contains only 53 stocks, nearly all of which are based in North America. Texas-based Oracle Corp (ORCL) and California-based companies ServiceNow Inc. (NOW) and Intuit Inc. (INTU) top the list. You will find companies from Asia and the Middle East in the mix, too, though.
Even with its small portfolio, FCLD maintains fairly good diversification across its 53 names. Less than 40% of the portfolio is in the top 10 names. You’ll also find more medium-sized companies than large, which opens the door to companies less commonly found in tech funds, such as Digital Realty Trust Inc. (DLR), a data center REIT.
Morningstar’s analysts give FCLD a gold badge, so they have high expectations for its future.
SPDR NYSE Technology ETF (XNTK)
The SPDR NYSE Technology ETF holds 35 “leading” U.S. technology companies in its portfolio. It defines leading as companies that have a minimum market capitalization of $2 billion and a trailing three-month average daily trading value of $10 million. They must also meet revenue and sales criteria, such as having increased their sales over the past 12 months and revenues within the top 75 tech companies designated by the index.
Unlike FTCD, XNTK is required to have at least 75% of its assets from companies headquartered in the U.S. And yet, XNTK is surprisingly more geographically diverse than the global FCLD, with nearly 15% of assets based outside of the U.S. These companies also come from 14 different sectors within technology, ranging from semiconductors and software to movies and entertainment. That said, nearly 30% of those companies are in the semiconductor sector at the moment. But only 37% of the fund’s assets are in its top 10 names.
Morningstar gives the fund only three stars, but it still gets a gold badge, so near future, at least, is bright. It’s also ranked the seventh-best technology ETF by U.S. News & World Report.
iShares Future Cloud 5G and Tech ETF (IDAT)
For another take on cloud computing, there’s IDAT. Like FTCD, it takes a global approach to the industry, welcoming companies of all sizes from both developed and emerging market economies. This could theoretically help it find firms with more growth potential than the behemoths that dominate the U.S. tech industry. However, it currently skirts the line between a growth and blend fund with its mix of growth and value companies.
The portfolio starts with well-known names — Nvidia and Broadcom Inc. (AVGO) — but quickly moves into less familiar territory. The third-largest holding is a California-based computer networking company called Arista Networks Inc. (ANET), followed by California data storage platform Pure Storage Inc. (PSTG). The result is a fairly diverse portfolio of 47 stocks, with 76% based in the U.S. Similarly, only 34% of the fund’s assets are in its top 10 names.
Morningstar gives IDAT the coveted gold badge, though only three out of five stars.
More from U.S. News
5 Best Short-Term Investments for Generating Income
7 Best Russell 2000 ETFs to Buy Now
8 Best Tech Index Funds to Buy Now
7 Best Tech ETFs to Buy in 2024 originally appeared on usnews.com
Update 10/08/24: This story was previously published at an earlier date and has been updated with new information.
