If there is one sector that is constantly evolving, it’s technology. Think about it this way. There was once a time when items such as CDs, fax machines, basic cell phones and VCRs were considered “high tech.” Today, those items and others are viewed as ancient relics.
For investors, there is good news because many exchange traded fund (ETF) issuers have kept up with technology’s breakneck evolutionary pace. Sure, the largest technology ETFs are still dominated by venerable tech names such as Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT) and other large-cap tech stocks. But a slew of a new age technology ETFs take different, but compelling approaches.
Investors looking to tap into some of the most exciting growth themes of tomorrow should consider these 5 technology ETFs.
Technology ETFs for Tomorrow:
Robo Global Automation & Robotics ETF (ROBO)
Expense ratio: 0.95% per year, or $95 on a $10,000 investment.
When it comes to robotics investing, the Robo Global Robotics & Automation Index ETF (NYSEARCA:ROBO) is the ETF that started it all. ROBO debuted in the fourth quarter of 2013 and, at the time, some so-called experts doubted the ETF’s viability. Those doubts have been more than quashed as ROBO is now a $2.32 billion juggernaut.
ROBO surged more than 44% last year, making it one of 2017’s best-performing non-leveraged ETFs. But the technology ETF has given back some of those gains this year. That is more a case of opportunity for investors than cause for alarm because the case for robotics investing remains alive and well. Healthcare remains a significant growth frontier for robotics technologies.
“The use of robotics in the healthcare industry is nothing new, but it is advancing at a rapid pace. The Renaissance Robot from Mazor Robotics has already improved surgical accuracy by 9% by enabling surgeons to place screws in spines with 99% accuracy… Google, Apple, Dell, and Hewlett-Packard are some of the big names that are making major investments in medical robotics, but there are many smaller players in this sector too.”
Technology ETFs for Tomorrow:
ALPS Disruptive Technologies ETF (DTEC)
Expense ratio: 0.50% per year, or $50 on a $10,000 investment.
There are an array of technology themes forecast to deliver exponential growth in the years ahead. But picking themes is akin to picking individual stocks, in that it can be a difficult task. The ALPS Disruptive Technologies ETF (BATS:DTEC) reduces the theme selection burden by offering investors exposure to not just one or two or few tech themes, but 10 themes.
DTEC’s thematic exposure includes 3D printing, cloud computing, cybersecurity, fintech, Internet of Things (IoT), mobile payments and robotics, among others.
DTEC’s 10 themes and 100 components are equally weighted to reduce single theme and stock-specific risk. Since DTEC came to market in December, it is up 9.9% compared to 6.3% for the tech-heavy Nasdaq Composite.
Technology ETFs for Tomorrow:
SPDR Kensho Smart Mobility ETF (XKST)
Expense ratio: 0.45%, or $45 on a $10,000 stake.
As the aforementioned ROBO and DTEC prove, evolving technology is not always confined to the tech sector itself. One of the epicenters of new waves of tech is the transportation space. Investors can play that theme with the SPDR Kensho Smart Mobility ETF (NYSEARCA:XKST).
XKST’s 35 holdings include companies with exposure to “autonomous and connected vehicle technology, drones and drone technologies used for commercial and civilian applications, and advanced transportation tracking and transport optimization systems.”
Like DTEC, this State Street fund debuted in December. Among the fast-growing, transportation areas XKST provides exposure to is drone technology.
“According to Goldman Sachs Research, spending on commercial/civilian drones is estimated to reach $13 billion between now and 2020,” said State Street.
Technology ETFs for Tomorrow:
iShares Exponential Technologies ETF (XT)
Expense ratio: 0.47% per year, or $47 on a $10,000 investment.
The iShares Exponential Technologies ETF (NASDAQ:XT) recently turned three years old and did so in style with $2.19 billion in assets under management. XT tracks the Morningstar Exponential Technologies Index and holds nearly 200 stocks, a fairly sizable roster among the more focused technology ETFs.
Companies in XT’s index are “identified by Morningstar’s Equity Research team as positioned to experience meaningful economic benefits as a user or producer of promising technologies.”
While XT allocates over 32 percent of its weight to tech stocks, it is not a dedicated technology ETF. In fact, XT’s nearly 31 percent weight to healthcare stocks is more than double what’s found in most traditional broad market ETFs.
None of XT’s holdings exceed weights of 0.84%. Top holdings include Netflix, Inc. (NASDAQ:NFLX) and Amazon.com, Inc. (NASDAQ:AMZN).
Technology ETFs for Tomorrow:
ARK Innovation ETF (ARKK)
Expense ratio: 0.75% annually, or $75 on a $10,000 position.
The ARK Innovation ETF (NYSEARCA:ARKK) is another example of a mutli-theme technology ETF. Companies in ARKK can include consumer discretionary, healthcare and technology names, among others.
An easy way of explaining ARKK’s strategy is that it is a best practices fund of sorts, adopting the best ideas and strategies from ARK Investment’s other ETFs. That methodology gives ARKK exposure to more than 20 investment themes spanning multiple sectors. Themes represented in ARKK include 3D printing, IoT, cloud computing, big data and e-commerce, among others. The fund has representation from seven sectors , but technology, healthcare and consumer discretionary combine for over 92%.
ARKK is actively managed so the fund managers can shift those sector weights at any time. This is focused fund as its roster usually roams between 40 and 55 holdings.
Todd Shriber does not own any of the aforementioned securities.
