Index funds that focus on technology have become popular among retail investors. In fact, many of these exchange-traded funds (ETFs) have returned double digits in the past year. However, volatility has kicked in recently and a number of these names have come off their all-time highs seen earlier in 2021. Yet, the Street expects the tech sector to be a central growth engine for years to come. Because of that, today’s article discusses seven index funds for the long-haul, despite these current declines.
The tech-heavy Nasdaq 100 index has returned over 42% in the past 12 months and hit a record high in late April. Since then, the index has lost about 3.5%. Plus, some of the individual stocks that make up the index are down a lot more.
This has investors asking themselves a question: which index funds will benefit from the recent choppiness in the markets? Typically, an index fund tracks a market index. I believe the following seven funds now offer a better risk-return profile for long-term investors. Moreover, with tech stocks outperforming many other industries, I believe tech index funds in particular will reward shareholders the most.
So, without further ado, here are seven of the best index funds to consider today:
- Amplify Transformational Data Sharing ETF (NYSEARCA:BLOK)
- ETFMG Prime Cyber Security ETF (NYSEARCA:HACK)
- Global X E-commerce ETF (NASDAQ:EBIZ)
- Innovator Loup Frontier Tech (NYSEARCA:LOUP)
- SPDR S&P Biotech ETF (NYSEARCA:XBI)
- SPDR S&P Semiconductor ETF (NYSEARCA:XSD)
- Vanguard Information Technology Index Fund ETF (NYSEARCA:VGT)
Index Funds to Buy: Amplify Transformational Data Sharing ETF (BLOK)
52-week range: $18.77 – $62.94
Dividend yield: 1.54%
Expense ratio: 0.71%
First up on this list of index funds, the Amplify Transformational Data Sharing ETF gives exposure to businesses that develop or utilize blockchain technologies. Since its inception in January 2018, net assets have grown over $1 billion.
When I mention blockchain, many readers are likely to think of cryptocurrencies, including Bitcoin (CCC:BTC-USD), Dogecoin (CCC:DOGE-USD) , Ethereum (CCC:ETH-USD) or Ripple (CCC:XRP-USD). These names have frequently been in the news. Blockchain technology also has a wide range of applications beyond crypto, however. In fact, recent research by Karl Wüst of ETH Zurich and Arthur Gervais of Imperial College London highlights the following:
“[B]lockchain as a technology has gained much attention beyond the purpose of financial transactions – distributed cloud storage, smart property, Internet of Things, supply chain management, healthcare, ownership and royalty distribution, and decentralized autonomous organizations just to name a few.”
BLOK stock, which has 48 holdings, is an actively managed fund. The top five industries (by weighting) are Technology Services (53.53%), Finance (22.69%), Electronic Technology (7.88%), Retail Trade (4.42%) and Miscellaneous (4.14%). The top ten holdings comprise over 40% of assets. Moreover, the companies in the fund mainly come from the Americas (77.19%) and the Asia-Pacific region (13.97%). Among its leading names are Microstrategy (NASDAQ:MSTR), Paypal (NASDAQ:PYPL) and Square (NYSE:SQ).
In the past year, BLOK is up about 129%. Year-to-date (YTD), it has returned a little over 23%. However, since reaching a record high of almost $63 in February, this name has lost some of its luster. Today, it hovers at $43. Potential investors could consider buying around these levels.
ETFMG Prime Cyber Security ETF (HACK)
52-week range: $41.81 – $64.36
Expense ratio: 0.60%
The ETFMG Prime Cyber Security ETF invests in companies that provide cybersecurity solutions. They include hardware, software and consulting services to defend against cybercrime.
HACK stock, which tracks the Prime Cyber Defense Index, has 61 holdings. This fund is spread across technology and industrials, with a sector allocation (by weighting) in Software (62.1%), Communication Equipment (9.34%), Professional Services (8.55%), IT Services (8.5%) and Aerospace & Defense (6.06%).
This fund is also becoming increasingly relevant, with cyberattacks in the news as of late. Moreover, recent research points out the following: “There is a hacker attack every 39 seconds […] Since COVID-19, the US FBI reported a 300% increase in reported cybercrimes […] Approximately $6 trillion is expected to be spent globally on cybersecurity by 2021.” In other words, this is an important growth industry.
Here, the top 10 holdings constitute about 28% of HACK’s assets under management, which stands at just over $2 billion. The leading five companies are Cisco (NASDAQ:CSCO), Proofpoint (NASDAQ:PFPT), NortonLifeLock (NASDAQ:NLOK), Fortinet (NASDAQ:FTNT) and Akamai Technologies (NASDAQ:AKAM).
Today, this pick of the index funds is up over 35% in the past 12 months. It hit a record high of $64.36 in late January. Now, HACK is trading at $58. Buy-and-hold investors would find value around these levels.
Index Funds to Buy: Global X E-commerce ETF (EBIZ)
52-week range: $20.40 – $37.97
Dividend yield: 0.77%
Expense ratio: 0.50% per year
The Global X E-commerce ETF (EBIZ) invests in global companies that are likely to benefit from the increased adoption of online commerce. They include those that operate e-commerce platforms as well as businesses that provide software and services.
EBIZ stock, which has 42 holdings, tracks the Solactive E-commerce Index. The fund started trading in November 2018 and has over $230 million in net assets. Additionally, a big chunk of its portfolio consists of the Consumer Discretionary sector (68.2%), followed by Communication Services (22.3%) and Industrials (5.5%). In terms of country breakdown, the U.S. leads with a 54.7% slice followed by China (25.5%) and Britain (5.8%).
Currently, EBIZ’s top 10 holdings comprise about 45.6%. Among the leading names in this one of the index funds are Williams-Sonoma (NYSE:WSM), Rakuten (OTCMKTS:RKUNY) and online travel agency Expedia (NASDAQ:EXPE). All of these companies have a lot to offer in terms of digital commerce.
Over the past year, EBIZ stock has returned 59%. However, after seeing a record high in February, the ETF has lost about 12.5% of its value. Therefore, its risk-return profile has improved for long-term investors.
Innovator Loup Frontier Tech (LOUP)
52-week range: $27.81 – $64.33
Expense ratio: 0.70% per year
The Innovator Loup Frontier Tech ETF invests in companies that are leading developments, especially in artificial intelligence (AI), robotics, autonomous vehicles (AVs), computer perception and virtual reality. This fund is balanced monthly and represents disruptive companies that are likely to influence the future of technology.
LOUP stock, which tracks the returns of the Loup Frontier Tech Index, currently has 30 holdings. It began trading in July 2018 and funds under management are close to $86 million. Moreover, Information Technology (69.29%), Industrials (13.57%), Consumer Discretionary (6.47%) and Communication Services (4.8%) are the main sectors represented in the fund.
At present, almost 42% of the fund is in the top 10 stocks. The mobile commerce platform Affirm (NASDAQ:AFRM), Chinese streaming platform operator Huya (NYSE:HUYA) and Chinese-language Internet search provider Baidu (NASDAQ:BIDU) are some of the leading names in LOUP’s roster. About 65% of the companies here are in the United States, followed by China (13%) and Japan (5.61%), among others.
LOUP is up 1.2% YTD and 81% in the past year. The fund hit an all-time high in mid-February. Since then, it has lost about 22% of its value. Investors who want global exposure might consider investing in this pick of the index funds below $50.
Index Funds to Buy: SPDR S&P Biotech ETF (XBI)
52-week range: $97.15 – $174.79
Dividend yield: 0.25%
Expense ratio: 0.35%
Next up on this list of index funds, the SPDR S&P Biotech ETF provides exposure to 191 biotechnology stocks. Since its inception in January 2006, net assets have grown to $6.68 billion. XBI stock tracks the S&P Biotechnology Select Industry Index, which is equal-weighted. Around 8.6% of the fund is in the top 10 companies, which have market capitalizations ranging between $1 billion and $86 billion.
More specifically, some of the top names in this fund include the cancer-treatment-focused biotech Curis (NASDAQ:CRIS) and the chronic-disease-focused biotech United Therapeutics (NASDAQ:UTHR). The mRNA-based-treatment developer Moderna (NASDAQ:MRNA) — which provided one of the first vaccines against Covid-19 — is the fourth largest holding in the ETF as well.
Over the past 12 months, XBI stock has returned a little over 18%. It hit an all-time high on Feb. 9. However, since the start of the year, the fund is down about 28%. Any further decline toward the $120 level would offer a better entry point for investors.
SPDR S&P Semiconductor ETF (XSD)
52-week range: $103.28 – $203.60
Dividend yield: 0.23%
Expense ratio: 0.35%
Lately, semiconductor companies have been making headlines due to the global chip shortage. The SPDR S&P Semiconductor ETF gives access to 42 semiconductor firms across a range of market capitalizations. As an equal-weight fund, it might be an appropriate choice for investors who are looking for exposure to mid- and small-cap semiconductor names.
The fund, which tracks the S&P Semiconductor Select Industry Index, started trading in January 2006. Additionally, XSD stock has assets under management at $865 million. Nvidia (NASDAQ:NVDA), Maxim Integrated Products (NASDAQ:MXIM) and Texas Instruments (NASDAQ:TXN) make up some of the top names in its roster.
In the past 52 weeks, this pick of the index funds returned about 67% and hit an all-time high of $203.60 in mid-February. Now, it is hovering at almost $174. But I believe this sector is likely to start another leg up in the weeks to come.
Index Funds to Buy: Vanguard Information Technology Index Fund ETF (VGT)
52-week range: $250.91 – $388.73
Dividend yield: 0.74%
Expense ratio: 0.10%
The Vanguard Information Technology Index Fund ETF gives access to a wide range of U.S. information technology businesses. Over the past decade, the IT sector has been a catalyst for growth in broader equity markets. Since this fund’s inception in January 2004, net assets have reached $50.4 billion.
VGT stock, which includes 331 holdings, tracks the returns of the MSCI US Investable Market Information Technology 25/50 Index. The fund’s holdings range across Technology Hardware, Storage & Periphera (21.8%), Systems Software (20.6%), Semiconductors (15.5%), Data Processing & Outsourced Services (14.3%), Application Software (12.8%) and other sectors.
Currently, about 57% of this fund’s assets are in the top 10 stocks. Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Nvidia, Visa (NYSE:V), Mastercard (NYSE:MA) and Paypal are all leading names here, with AAPL and MSFT coming in at 20.2% and 16.4%, respectively. Aside from those, no other stock has more than a 3.4% weight in the ETF. This means moves in either AAPL or MSFT will likely affect the fund’s price.
Over the past year, VGT has returned about 44% as well as 5% YTD. In late April, it hit an all-time high of $388.73. Now, this pick of the index funds hovers around $371. Buy-and-hold investors looking for exposure to IT — and especially to Apple and Microsoft — should consider buying the dips here.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.