Tech ETFs Explained<\/h2>\n\n\n\n
Tech ETFs offer you broad exposure to the best investment opportunities in the technology industry, in the form of bonds, mutual funds, and stocks combined. You can either build an entirely different tech portfolio or incorporate the tech industry into your existing portfolio while ensuring diversification and lower risk than isolating stocks.<\/p>\n\n\n\n
While these investment tools are not entirely new, tech ETFs have outperformed themselves by their high standards in recent times. But the more exciting part is that this growth does not seem to be stopping anytime soon. From all indications, tech is well-positioned to break into and take over other areas of the economy we least expect.<\/p>\n\n\n\n For ease of identification, we can classify the tech sector into three major groups (GICS Classification).<\/a> The first group comprises software and I.T. services companies. The second group includes technology hardware and equipment companies, including communications, electronic components and instruments, storage and peripherals, and other technology hardware. The last group is the “chip” companies that manufacture semiconductors and semiconductor equipment.<\/p>\n\n\n\n The ideal tech ETFs must invest in these three sectors to ensure diversification and adequate risk management. Fortunately, my list of the best tech ETFs meets this need, as you will find in the following sections of this post.<\/p>\n\n\n\n While technology has been pivotal to development over the years, recent happenings have added to the relevance, especially in the past few years. The COVID-19 pandemic, for example, is responsible for the creation and advancement of tons of technologies. In addition, more people and businesses have adopted both new and existing techs in the last few years.<\/a> As a result, many large-cap tech stocks became even more dominant, and the upcoming brands grew way faster than expected.<\/p>\n\n\n\n Let\u2019s put some perspective on this. The Semiconductor Industry Association (SIA) recently announced a 27.6% annual increase in the global sales of s<\/a>emiconductors. The total sales in the third quarter of 2021 stand at $144.8 billion – a 7.4% increase from the second quarter. Similarly, the microchip sector recorded $48.3 billion total sales in September – a 27.6% annual increase and 2.2% monthly increase.<\/p>\n\n\n\n Interestingly, the tech exchanged-traded funds (ETFs) also stepped up within this period. For example, the top five ETFs in the United States<\/a> (in terms of market cap) have over $34 billion in assets under management (AUM) as of August. This translates to a roughly 71% increase in AUM and 37% in total returns since the start of 2020.<\/p>\n\n\n\n Overall, the track record of tech-focused ETFs indicates they can be your gateway to higher returns at lower risks. The next section contains my list of the best tech ETFs you should consider.<\/p>\n\n\n\n Launched in 2009, the Technology Select Sector SPDR Fund (XLK) is a broad tech ETF that invests in various industry sectors. It has been one of the largest and cheapest funds in its segment and focuses on the Technology Select Sector Index. It is ideal for investors who want to break into only large-cap companies.<\/p>\n\n\n\n XLK’s total asset under management (AUM) is currently $49,55 billion, with an expense ratio of 0.12%. 50% of XLK’s 77 holdings have an ESG rating of AAA or A.A.<\/a> (MSCI). You can expect this fund to withstand interruptions resulting from environmental, social, and governmental issues.<\/p>\n\n\n\n Unlike other index-tracking funds on this list, ARK Innovation ETF (ARKK) is man-managed by Ark Invest founder, CEO, and CIO, Catherine Wood. But, this does not take anything away from the potentials of this ETF.<\/p>\n\n\n\n It has roughly $9 billion assets under management, returning a dividend yield of 0.2% and with an expense ratio of 0.75%. Interestingly, ARRK has outperformed other technology-focused ETFs over the last few years. Also, Wood is big on Tesla, which explains why over 10% of ARKK’s assets are currently in TSLA, with another roughly 9% in Invitae (NVTA).<\/p>\n\n\n\n For more on ARKK, check out the issuer’s website<\/a>.<\/p>\n\n\n\n The First Trust Dow Jones Internet Index Fund (FDN)<\/a> is the third entry on my list of the best tech ETFs. The fund comprises 40 U.S. companies, including Amazon, Facebook, Zoom, DOCU, and Netflix. As the name suggests, roughly half of FDN’s yearly returns come from the internet, including internet services and e-commerce.<\/p>\n\n\n\n It currently has over $10 billion assets under management and an expense ratio of 0.51%. Also, the MSCI rating of FDN is 4.39 out of 10, which means it is fairly immune to long-term risks and opportunities from environmental, social, and governance factors.<\/p>\n\n\n\n It is issued by First Trust<\/a>, and it monitors a market-cap weighted index of the biggest internet companies in the United States.<\/p>\n\n\n\n The Vanguard Information Technology Index Fund (VGT)<\/a> is an open-ended, American tech-ETF with the highest diversity in terms of its holdings. VGT invests in more small- and micro-cap companies than other ETFs in its category and monitors the MSCI US Investable Market Information Technology performance.<\/p>\n\n\n\n The expense ratio is 0.10%, with over $60 billion assets under management. Of the 338 holdings in its books, 43% receive an MSCI ESG Rating of AAA or AA<\/a>, which means long-term risks and opportunities from environmental, social, and governance factors do not affect them.<\/p>\n\n\n\n VGT will be a decent tech ETF for your portfolio, considering its medium-risk outlook and very low expense ratio.<\/p>\n\n\n\n iShares PHLX Semiconductor ETF (SOXX) will be an excellent fit for your portfolio if you want a fund that purely invests in the semiconductor (chips), including manufacturers of semiconductor materials and providers of equipment or services related to semiconductors.<\/p>\n\n\n\n There are currently 30 holdings in SOXX’s books, including industry top names like Intel, Nvidia, Texas Instruments, AVGO, and Qualcomm. Roughly 41% of SOXX’s holdings receive an ESG rating of 8.14 out of 10<\/a>, according to MSCI. It has over $9 billion in assets under management, with a 23% turnover rate. The expense ratio currently stands at 0.43%.<\/p>\n\n\n\n SOXX is previously known as the iShares PHLX Semiconductor ETF and is issued by iShares<\/a>.<\/p>\n\n\n\n Investors looking to add a pure blend of S&P 500 stocks to their portfolio should strongly consider Invesco S&P 500 Equal Weight Technology ETF (RYT). The 75 stocks in RYT’s books are in S&P 500’s information technology sector, and these include the strongest American companies.<\/p>\n\n\n\n Only a fraction of RYT’s overall assets spread across its top ten holdings, which means it does not have the normal market-like portfolio. The yearly average return rate of RTY since its launch in 2006 is 14%, and the expense ratio is 0.40%. The MSCI ESG score of the holdings in this fund is 8.07 out of 10, indicating a solid resilience to risks and opportunities related to environmental, social, and governance issues.<\/p>\n\n\n\n Check out the issuer’s website<\/a> for more on RYT.<\/p>\n\n\n\n I am rounding up this technology ETF list with the seventh entry \u2013 the SPDR S&P Software Services ETF (XSW). XSW is another tech ETF focusing on the S&P market, covering the I.T. consulting, data processing, application software sub-industries.<\/p>\n\n\n\n Since its inception in 2011, XSW has added over 180 stocks to its books, and its assets under management are currently worth $538.67 million. XSW’s yearly average return is around 22%, and the expense ratio is 0.35%. <\/p>\n\n\n\n Suppose you are interested in a portfolio focusing on the software and services (with a slight emphasis on the latter) part of the U.S. equity market. In that case, you should consider adding XSW to the portfolio.<\/p>\n\n\n\n![\"Technology](\"https:\/\/investorimpactlab.com\/wp-content\/uploads\/2021\/12\/Screen-Shot-2021-12-24-at-5.01.54-PM-1024x385.png\")
Why Buy Tech ETFs?<\/h2>\n\n\n\n
![\"Technology](\"https:\/\/investorimpactlab.com\/wp-content\/uploads\/2021\/12\/Screen-Shot-2021-12-24-at-5.03.59-PM-1024x479.png\")
7 Best Tech ETFs You Should Consider<\/h2>\n\n\n\n
1. Technology Select Sector SPDR Fund (XLK)<\/h3>\n\n\n\n
2. ARK Innovation ETF (ARKK)<\/h3>\n\n\n\n
3. First Trust Dow Jones Internet Index Fund (FDN)<\/h3>\n\n\n\n
4. Vanguard Information Technology ETF (VGT)<\/h3>\n\n\n\n
5. iShares Semiconductor ETF (SOXX)<\/h3>\n\n\n\n
6. Invesco S&P 500 Equal Weight Technology ETF (RYT)<\/h3>\n\n\n\n
7. SPDR S&P Software Services ETF (XSW)<\/h3>\n\n\n\n