The technology sector, the largest sector weight in the S&P 500, is usually the first place investors look for disruptive products and themes that have the potential to bring seismic shifts to everyday functions, such as banking, shopping, transportation and much, much more.
Sure, traditional tech ETFs can help investors gain exposure to fast-growing, unique themes. However, old-guard tech ETFs are usually heavily allocated to the sector’s largest companies and many of those firms may, at least for the moment, only have small exposure to some of the industry’s revolutionary products and themes.
Investors looking to tap some of the truly revolutionary tech themes may need to be somewhat aggressive, eschewing defensive strategies in favor of more thematic fare. Of course, the trade-off for taking on a little more risk is the potential for out-performance.
Here are five tech ETFs providing access to some compelling themes.
Global X Cloud Computing ETF (CLOU)
Expense ratio: 0.68% per year, or $68 on a $10,000 investment.
Give the Global X Cloud Computing ETF (NASDAQ:CLOU) some credit. It’s one of the newest tech ETFs to be highlighted here following its mid-April debut, and CLOU is already to home to nearly $154 million in assets under management. That is an impressive haul for a thematic tech ETF that is barely more than a month old and CLOU’s asset-gathering acumen is even more impressive when considering the fund entered a niche with established competition and that rival ETF is cheaper.
CLOU tracks the Indxx Global Cloud Computing Index. This new tech ETF’s roster includes companies “whose principal business is in offering computing Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS), Infrastructure-as-a-Service (IaaS), managed server storage space and data center real estate investment trusts, and/or cloud and edge computing infrastructure and hardware,” according to Global X.
For long-term investors, CLOU is a potentially lucrative choice due to the exponential growth expected of the cloud market.
“The worldwide public cloud services market is projected to grow 17.3 percent in 2019 to total $206.2 billion, up from $175.8 billion in 2018,” according to Gartner, Inc. “The fastest-growing segment of the market is cloud system infrastructure services (infrastructure as a service or IaaS), which is forecast to grow 27.6 percent in 2019 to reach $39.5 billion, up from $31 billion in 2018.”
BlueStar Israel Technology ETF (ITEQ)
Expense ratio: 0.75%
The BlueStar Israel Technology ETF (NYSEARCA:ITEQ) does not target a specific niche or segment, but this fund is every bit a nifty tech ETF. Plus, ITEQ is soaring this year. ITEQ, which hit an all-time high on Friday, May 17, is up 23% year-to-date, beating the MSCI Israel Index by nearly 1,000 basis points.
ITEQ is the first tech ETF dedicated to Israel’s vast technology economy. As such, the fund addresses several fast-growing tech industries, including 3D printing, artificial intelligence, autonomous vehicles, cybersecurity and more. More than 75% of ITEQ’s 57 holdings are technology stocks, but the fund features exposure to healthcare and industrial names, among other sectors. ITEQ could also serve as an avenue for investors looking to dodge the fallout from the U.S./China trade spat.
“Last year, Israel’s exports to China alone increased by 52%. A significant portion consisted of hi-tech and cyber-solutions, which Israeli companies sold to Chinese customers and investors,” reports The Jerusalem Post. “The soaring trade between Israel and China is further encouraged by US-Chinese relations. As Trump continues his ‘America first’ policy, Silicon Valley becomes less accessible to companies in China. Israel’s rapidly growing hi-tech industry is an attractive replacement, and its technology companies are taking advantage of the opportunities the Chinese markets offer.”
The 3D Printing ETF (PRNT)
Expense ratio: 0.66%
The 3D Printing ETF (CBOE:PRNT) is a passively managed tech ETF that hails from the ARK family of ETFs, which is home to some of the best-performing and largest actively managed equity ETFs on the market. PRNT, which is fast approaching its third anniversary, tracks the Total 3D-Printing Index.
That benchmark “is composed of equity securities and depositary receipts of exchange listed companies from the U.S., non-U.S. developed markets and Taiwan that are engaged in 3D printing related businesses within the following business lines: (i) 3D printing hardware, (ii) computer aided design (“CAD”) and 3D printing simulation software, (iii) 3D printing centers, (iv) scanning and measurement, and (v) 3D printing materials,” according to PRNT’s issuer.
PRNT holds 57 stocks and is up 11.32% this year. Bolstering the case for PRNT as a tactical tech ETF for risk-tolerant investors are robust growth expectations for the global 3D printing market. Alone, the 3D printing materials market could be worth $23 billion in 2029 and rapid growth is forecast for 3D printing applications and products in industries such as automotive, healthcare and more.
ALPS Disruptive Technologies ETF (DTEC)
Expense ratio: 0.50%
The ALPS Disruptive Technologies ETF (CBOE:DTEC) is one of the best tech ETFs for investors seeking thematic exposure to consider because the fund dives into 10 themes, not just one or two. DTEC’s 10 disruptive themes are equally weighted and include 3D printing, artificial intelligence, cloud computing, cybersecurity, healthcare innovation, Internet of Things and more.
Not only are the 10 themes featured in DTEC weighted equally, but so are the fund’s components, which provides a layer of mitigation of single stock risk. DTEC holds 100 stocks across the large-, mid- and small-cap segments.
“Thematic investing aims to capture exposure to secular trends taking shape within an economy, which can arise due to demographic shifts, changes in government policy, or more commonly, advances in technology,” according to ALPS.
DTEC is up 23.35% year-to-date and is beating the Nasdaq-100 Index by more than 400 basis points.
Defiance 5G Next Gen Connectivity ETF (FIVG)
Expense ratio: 0.30%
The Defiance 5G Next Gen Connectivity ETF (NYSEARCA:FIVG) debuted in March as the the first fund dedicated to the 5G communications theme and this tech ETF is off to a solid start with $77.66 million in assets under management. FIVG’s annual fee of just 0.30%, or $30 on a $10,000 investment, compares favorably with the broader universe of thematic tech ETFs and that could be one reason why this highly focused product is luring investors.
Eight industry groups are represented in FIVG and the tech ETF is heavy on semiconductor makers and manufacturers of networking gear. Familiar names among FIVG’s top 10 holdings include Xilinx Inc. (NASDAQ:XLNX), Broadcom Inc. (NASDAQ:AVGO) and Cisco Systems Inc. (NASDAQ:CSCO).
What makes FIVG an interesting tech ETF over the long run is that 5G’s applications are about much more than mobile phones. Sure, we’re all hearing about 5G in AT&T and Verizon adds, but the applications of 5G spread into smart cars, healthcare, Internet of Things and much more.
5G will support applications that rely on low latency, high reliability, strong security and availability, enabling the operation of remote devices where failure is not an option. For example, in autonomous vehicles or remote surgeries,” according to Defiance ETFs.
Todd Shriber does not own any of the aforementioned securities.