It is almost impossible to avoid the technology sector. Then again, avoiding technology has not been a wise move. It is the best-performing group in the S&P 500 this year. As the largest sector by market capitalization in the U.S., it’s hard to avoid for investors using supposedly diverse broader market index funds and exchange-traded funds (ETFs).
The sector’s impact on the U.S. equity market is undeniable. Each of four largest U.S. companies by market value, including Apple Inc. (NASDAQ:AAPL), Alphabet Inc (NASDAQ:GOOG NASDAQ:GOOGL) and Microsoft Corporation (NASDAQ:MSFT) are tech stocks.
Predictably, the world of ETFs reflects tech’s heft and investors’ thirst for tech stocks. Several dozen ETFs are either dedicated funds or very close to being an exclusive tech fund. Venerable names in this group include the Technology Select Sector SPDR (NYSEARCA:XLK) and the PowerShares QQQ (NASDAQ:QQQ), among others.
While there are no guarantees that technology will repeat its bullish ways in 2018, the sector is chock full of catalysts that position it nicely for another strong year. Some, or all, of the following technology ETFs could reward investors, from conservative to risk takers, in 2018.
Expense ratio 0.084% per year, or $8.40 on a $10,000 investment
Acknowledging that this could change at anytime, the Fidelity MSCI Information Tech ETF (NYSEARCA:FTEC) is, as of this writing, the least expensive tech sector ETF in the U.S. Actually, frugal investors that like sector ETFs should know that, again at least for the moment, Fidelity, not Vanguard is home to the cheapest bunch of sector ETFs on the market.
Aside from its low fee, FTEC is known for having one of the largest weights to Apple among all tech ETFs at 13.6%. Home to $1.1 billion in assets under management, FTEC is also the largest ETF in Fidelity’s sector suite.
FTEC holds 360 stocks, which is far more than XLK, indicating the Fidelity tech ETF features some exposure to smaller tech names though the fund is dominated by mega-caps such as Apple, Alphabet and friends.
Annual fee: 0.6%
The First Trust Cloud Computing ETF (NASDAQ:SKYY) is a prime example of the first mover advantage in the ETF world. When it debuted more than six years ago, SKYY was criticized as being too much of a niche ETF.
Today, cloud computing is one of the fastest-growing segments of the broader tech spaces and SKYY has $1.1 billion in assets under management.
That dominant perch has prevented any competing funds from coming to market, a rarity in the ETF space, which is business littered with copycats.
At first glance, SKYY does not appear to be an ETF for long-term investors, but statistics indicate otherwise. Cloud computing is expected to grow to $162 billion in 2020 on the back of a compound annual growth rate (CAGR) of 19%, according to Forbes.
Expense ratio: 0.95%
Speaking of tech ETFs that once a looked a little too narrowly focused there is the Robo Global Robotics&Automation ETF (NASDAQ:ROBO). Like SKYY, the Robo Global Robotics&Automation ETF has proved the critics wrong as highlighted by $1.4 billion in assets under management.
More importantly, ROBO is delivering when it comes to performance. This tech ETF is up 42% year-to-date, outpacing the Nasdaq-100 Index by roughly 1,600 basis points.
ROBO is another tech ETF with a compelling long-term thesis. Members of the ROBO Global Robotics & Automation Index, ROBO’s underlying benchmark, are knocking the cover off the ball when it comes to earnings and revenue beats this year.
Booming demand for artificial intelligence and healthcare robotics are among the catalysts that could support more upside for ROBO in 2018.
Expense ratio: 0.47%
The iShares Exponential Technologies ETF (NASDAQ:XT) makes for an interesting spin on a diversified approach to tech stocks. In fact, XT is not confined to the technology sector. The ETF devotes 30% of its weight to healthcare stocks, its second-largest sector allocation behind technology at 32%.
XT holds 191 stocks and follows the Morningstar Exponential Technologies Index. None of XT’s holdings account for more than 1.2% of the ETF’s weight, an approach that helps limit single stock risk.
XT is also a global ETF, featuring exposure to about a dozen countries in addition to the U.S. The approach is working as evidenced by the fund’s 31.2% year-to-date gain.
Annual fee: 0.29%
Until recently, U.S. small-caps were laggards, but if that trend reverses in earnest next year, the PowerShares S&P SmallCap Information Technology Portfolio (NASDAQ:PSCT) could be a leader. As it is, this tech ETF is up 9.3% year-to-date, putting it well ahead of broad small-cap benchmarks, such as the Russell 2000 and the S&P SmallCap 600 Index.
PSCT holds 91 stocks, which is a decent basket for a small-cap ETF dedicated to a specific sector, but semiconductor demand trends are pivotal to this tech ETF’s fortunes. Electronic equipment and semiconductor names combine for over 54% of the fund’s weight.
Historically, focusing on small-cap tech over a diversified smaller stock approach has been rewarding. PSCT’s underlying index has topped the S&P SmallCap 600 Index over the trailing 12-, 36- and 60-month periods.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.