It’s tough to find the next Tesla (NASDAQ:TSLA) to invest in. Therefore, putting your money into tech ETFs may be a better option.
June 29 marked the ten-year anniversary of CEO Elon Musk taking Tesla public. At the time, TSLA shares were offered at $17 and the valuation was at $1.7 billion. And yes, there has been lots of volatility and drama since then. However, if you invested $1,700 for 100 shares of TSLA stock, the holding would be worth nearly $140,000 today (more than enough to buy a high-end EV from the company!)
With this approach, you get the benefit of diversification. However, there is also a good deal of concentration in the tech industry.
Besides, there are specialized ETFs that span emerging growth categories like artificial intelligence (AI) and quantum computers. These industries hold the promise of significant growth in the years ahead.
Now, with all of that in mind, what are some tech ETFS to consider? Well, let’s take a look at seven:
- Vanguard Information Technology ETF (NYSEARCA:VGT)
- Invesco S&P SmallCap Information Technology ETF (NASDAQ:PSCT)
- First Trust Cloud Computing ETF (NASDAQ:SKYY)
- First Trust Nasdaq Cybersecurity ETF (NASDAQ:CIBR)
- Global X Robotics & Artificial Intelligence ETF (NASDAQ:BOTZ)
- Defiance Quantum ETF (NYSEARCA:QTUM)
- Renaissance IPO ETF (NYSEARCA:IPO)
Let’s dive in.
Tech ETFs to Buy: Vanguard Information Technology ETF (VGT)
Vanguard’s Information Technology ETF, which has $36.9 billion in assets under management, provides a way to get a broad exposure to the technology universe in the U.S. market. The ETF is based on the MSCI US Investable Market Index Information Technology 25/50 index, which has over 330 stocks. The holdings span from small to large operators in key areas like software, communications equipment, cellular phones, peripherals and semiconductors.
However, the index still skews toward large capitalization stocks, with the average of $201.8 billion. Some of the top holdings include Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Visa (NYSE:V), and Mastercard (NYSE:MA).
Moreover, a key advantage of this tech ETF is the low-cost structure. Consider that the expense ratio is only 0.10% for VGT, and also a decent dividend yield of 1.09%.
Invesco S&P Small-Cap Information Technology ETF (PSCT)
If you want to get exposure to smaller tech company opportunities, there is the Invesco S&P SmallCap Information Technology ETF. Yes, the fund is based on the S&P SmallCap 600 Capped Information Technology Index. And at any given time, the PSCT fund will invest at least 90% of its assets in this index.
Overall, though, it can certainly be volatile. For the year so far, PSCT stock is down 10.4%. However, when it comes to small company tech ETFs, the focus should be on the long term. For example, the PSCT fund has logged an average annual return of 14.85% for the past decade.
Additionally, the portfolio has an average market cap of about $1.8 billion, and some of the top holdings include AlarmCom (NASDAQ:ALRM), Itron (NASDAQ:ITRI) and LivePerson (NASDAQ:LPSN). In all, the number of positions is 75, and none of them represent more than 4.01% of the value of the portfolio.
Tech ETFs to Buy: First Trust Cloud Computing ETF (SKYY)
Cloud computing has been around and growing for more than 20 years now. The category was pioneered by Salesforce (NYSE:CRM), which has become one of the world’s largest software company with a market capitalization of $180.5 billion.
Nonetheless, the industry is still in the growth phase. In fact, acording to Gartner, the spending on cloud computing technologies is forecasted to go from $266.4 billion in 2020 to $354.6 by 2022.
That said, though, CRM stock shares are above $200 right now. Therefore, a cheaper way to play this megatrend is the First Trust Cloud Computing ETF, which has $4.53 billion in assets under management. This tech ETF uses the ISE CTA Cloud Computing Index, and includes a variety of cloud categories like SaaS (Software-as-a-Service), PaaS (Platform-as-a-Service) and IaaS (Infrastructure-as-a-Service). Some of the top holdings include Microsoft, Amazon (NASDAQ:AMZN), Alibaba (NYSE:BABA) and Oracle (NYSE:ORCL).
Moreover, the SKYY fund also has an expense ratio of 0.60% and the dividend yield is right around 0.2%. So, overall, SKYY could be worth a look as one of the top tech ETFs to buy.
First Trust Nasdaq Cybersecurity ETF (CIBR)
While technologies like mobile apps and cloud computing provide many powerful benefits, there are certainly some notable downsides. That said, perhaps the most harmful is hacking.
But, then again, this has meant strong secular growth for many cybersecurity firms. And according to research from Gartner, the spending on this technology is forecasted to go from $124 billion in 2019 to $170.4 billion by 2022.
As for one of the top tech ETFs in this category, there is the First Trust Nasdaq Cybersecurity fund. Note that it is based on the Nasdaq CTA Cybersecurity Index, which has a minimum market capitalization requirement of $250 million.
Top positions include companies like Crowdstrike (NASDAQ:CRWD), Okta (NASDAQ:OKTA) and Zscaler (NASDAQ:ZS). The average market capitalization is $6.3 billion and there are 43 stocks in the portfolio for CIBR. And all of these reasons make CIBR stock a great option.
Tech ETFs to Buy: Global X Robotics & Artificial Intelligence ETF (BOTZ)
During the past decade, there have been significant strides in AI. This has been made possible with the explosion of data, the rapid increase in GPUs (graphics processing units) and innovations like deep learning.
In turn, the world’s largest tech companies like Facebook (NASDAQ:FB), Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) and Microsoft have all made AI a strategic priority. But of course, venture capitalists have been investing heavily in the sector.
So, what about an ETF for this category? Well, there is the Global X Robotics & Artificial Intelligence fund. It is relatively new, having been launched in September 2016, and the asset size is small. However, since inception, the return has been about 65%.
The BOTZ fund has 34 positions, which include companies like Nvidia (NASDAQ:NVDA), Keyence and SMC. In fact, the fund provides significant exposure to non-US markets. In fact, about 60% of the assets are based in other countries. And these reasons make BOTZ stock another one of the great tech ETFs out there.
Defiance Quantum ETF (QTUM)
Traditional CPUs (central processing units) are starting to reach their limits. And because of this, tech companies are looking at quantum computers, which are based on the science of subatomic particles.
However, there is something to keep in mind: there are no commercially available machines! Yet, there are a myriad of companies investing in this cutting-edge technology.
There is even an ETF, called Defiance Quantum, that is focused on this emerging category. This tech ETF is based on the BlueStar Quantum Computing and Machine Learning Index — which tracks approximately 80 globally-listed stocks across all market caps.
Moreover, the QTUM fund was created in September 2018 and has a modest amount of assets under management at $31.3 million. Although, the expense ratio is reasonable at 0.40% — adding just one more reason that QTUM is a fantastic tech ETF.
Tech ETFs to Buy: Renaissance IPO ETF (IPO)
True, the Renaissance IPO fund is not necessarily a tech ETF. However, it does usually have a large number of tech companies in the portfolio, as well as biotech firms. After all, the IPO market is often for next-generation companies to raise capital.
The IPO fund tracks the Renaissance IPO Index, which includes 42 companies. There is a quarterly review to assess what companies should stay or be removed.
For the year, the IPO fund has been fairly solid. In fact, year-to-date, IPO stock is up 40.5%. It certainly has helped that the holdings have included breakout companies like Zoom Video (NASDAQ:ZM), Slack Technologies (NYSE:WORK) and Moderna (NASDAQ:MRNA).
I actually selected the IPO fund for InvestorPlace.com’s annual exchange-traded funds contest. As of now, it’s ranked No. 2, behind the Global X Cloud Computing Fund (NASDAQ:CLOU).
Tom Taulli (@ttaulli) is an advisor and author of various books and online courses about technology, including Artificial Intelligence Basics, The Robotic Process Automation Handbook and Learn Python Super Fast. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s. As of this writing, he did not hold a position in any of the aforementioned securities.