- Exchange-traded funds (ETFs) make it easy to pick up the tech sectors’ bargains.
- Technology Select Sector SPDR Fund (XLK): The classic tech ETF features big trading volumes and low expenses.
- iShares Expanded Tech-Software Sector ETF (IGV): Cloud computing remains a major trend for technology.
- Invesco S&P SmallCap Information Technology ETF (PSCT): Faster growth can be found in the small-fries.
- iShares Exponential Technologies ETF (XT): Finding the best future-forward tech stocks or themes can be hard to do, but the XT ETF can help.
- VanEck Semiconductor ETF (SMH): Shortages and demand continued to benefit technology’s “backbone.”
- First Trust NASDAQ Technology Dividend Index Fund (TDIV): Income investors can find a lot to like when it comes to technology stocks.
- The KraneShares CSI China Internet ETF (KWEB): The biggest values in tech may be overseas.
Thanks to the recent liftoff in interest rates, as well as recessionary fears and general overvaluations, the technology sector isn’t what it used to be. As investors have switched from growth to value, many high-growth stocks, exchange traded funds (ETFs) and sectors — like tech — have been shunned by portfolios. Year-to-date, the Dow Jones U.S. Technology Index is down by nearly 25%.
However, longer-term the picture is still rosy for technology. Tech continues to invade more of our daily lives — both in work and in play. As such, spending on technology continues to grow. That gives investors an interesting opportunity during the current malaise to buy good, quality tech stocks on the cheap.
And the best way to do so is via broad and specialized ETFs in the sector. Here, investors don’t have to pick winners or losers, and get a wide basket of firms for low expenses. ETFs makes it easy to pick up the bargains.
With that, here are seven great ETFs investors can use to add a dose of technology to their portfolios.
|XLK||Technology Select Sector SPDR Fund||$137.21|
|IGV||iShares Expanded Tech-Software Sector ETF||$275.33|
|PSCT||Invesco S&P SmallCap Information Technology ETF||$124.34|
|XT||iShares Exponential Technologies ETF||$50.79|
|SMH||VanEck Semiconductor ETF||$237.13|
|TDIV||First Trust NASDAQ Technology Dividend Index Fund||$55.36|
|KWEB||KraneShares CSI China Internet ETF||$27.41|
Technology Select Sector SPDR Fund (XLK)
Expense Ratio: 0.1%, or $10 per $10,000 invested annually.
If there’s one technology ETF investors should consider first, it has to be the Technology Select Sector SPDR Fund (NYSEARCA:XLK). Launched in 1998, the tech SPDR was one of first ETFs period and features nearly $40 billion in assets. It also features swift trading volumes in excess of 2 million shares per day and tight bid-ask spreads.
In this day and age, liquidity remains a top concern for portfolios and the XLK ETF delivers on that front.
What investors get with the XLK itself is a great core technology fund.
Its 76 holdings covers all the major large-capitalization tech stocks in the S&P 500 and includes plenty of top hardware, software, semiconductors and services names. Major holdings for the ETF include standard fare like Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT). However, the XLK ETF does include some more unusual choices like payment processor Visa (NYSE:V), highlighting the tech-like nature of many businesses that investors may not consider when looking at the sector.
The ETF has been a top performer as well. Over the last decade, the XLK has managed to post an 18.84% annual return. That’s better than the broader market.
Helping drive that return has been the XLK’s ultra-low expense ratio of 0.1% or just $10 per $10,000 invested.
Overall, there’s a reason why the XLK is royalty among tech ETFs and investors should consider it stop number one on their journey.
iShares Expanded Tech-Software Sector ETF (IGV)
Expense Ratio: 0.43%
If you’ve ever checked your bank balance from your phone or logged on remotely for work, you’ve experienced the sheer growth of cloud computing. Perhaps no tech trend has changed the way we actually live our lives more than this.
Because of that, many cloud stocks were the market’s darlings in the last year or so, exacerbated by the pandemic. But with plenty of firms being “all revenue and no profits,” many in the sector have been tech’s biggest causalities in 2022.
Case in point, the iShares Expanded Tech-Software Sector ETF’s (BATS:IGV) 31% year-to-date drop as people sold off its components.
But that dip has made some top cloud players massive bargains.
The ETF tracks S&P North American Expanded Technology Software Index. That mouthful of an index name provides access to 126 different software names in the U.S. and Canada. The key is the changing nature of software. These days, it is all about cloud computing, software-as-a-service (SaaS), reoccurring revenues, etc. And the bulk of the holdings in the index are tied to this theme. Perhaps more importantly, the IGV ETF holds a good mix of old tech who has made the cloud transition, profitable cloud computing names and smaller start-ups.
For example, the fund holds tech-giant Oracle (NYSE:ORCL), profitable cloud human relations specialist Workday (NASDAQ:WDAY) and small-cap Yext (NYSE:YEXT). With this ETF, investors really do get a wide spectrum of cloud computing names.
With its recent dip and low 0.43% expense ratio, IGV makes for an ideal play on theme.
Invesco S&P SmallCap Information Technology ETF (PSCT)
Expense Ratio: 0.29%
Over long periods of time in the market, small beats large. And nowhere is that truer than in tech. Today’s start-up becomes tomorrow’s Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). The issue for most investors is getting access to these small fries. Most tech ETFs are overweight in the big boys. There’s nothing wrong with that, but those looking for pure growth can be left wanting.
The issue is, with the current market trends, betting on individual names can be a risky business.
And that’s why the Invesco S&P SmallCap Information Technology ETF (NASDAQ:PSCT) should be on your list.
As its name suggests, PSCT tracks small-cap tech stocks in the benchmark S&P SmallCap 600 index. This is a fertile hunting ground for tomorrow’s technology leaders. Top holdings include networking equipment maker Viavi Solutions (NASDAQ:VIAV) and semiconductor software firm PDF Solutions (NASDAQ:PDFS). The names may not sound familiar, but that’s the point of the ETF. PSCT provides a real growth element in the sector.
Even better is that the recent drop has pushed down the ETF’s forward P/E to 20. That’s below the forward P/E for the previously mentioned XLK. That means, these little growth stocks are on sale in a big way, making the PSCT a great way to own them.
Expenses for the ETF clock in at just 0.29% per year.
iShares Exponential Technologies ETF (XT)
Expense Ratio: 0.46%
Innovation and the technology sector have always gone hand-in-hand. This remains true today. From the metaverse and VR technology to self-driving cars and genomic designed drugs, there are a lot of trends and themes waiting to disrupt the market. The problem is making a correct bet. This is especially true when looking potentially decades out.
But ETFs can help make our jobs easier when looking at so-called exponential technologies.
As the oldest and largest passive fund in the sector, iShares Exponential Technologies ETF (NASDAQ:XT) is great choice to bet on this disruption. The ETF tracks the Morningstar Exponential Technologies Index. Morningstar defines this as “[firms] which displace older technologies, create new markets, and have the potential to create significantly positive economic benefits.” This includes a variety trends like 3D printing, robotics, personalized medicine, big data, etc.
The ETF casts a wide net with nearly 200 holdings. The win is that these disruptors are prime examples of non-tech but tech-like stocks. Yes, there are classic technology firms like Citrix Systems (NASDAQ:CTXS) among XT’s holdings, but it also includes firms like drug developer Bristol-Meyers (NYSE:BMY). Investors get a wide gamut of tech stock flavors with the XT ETF.
That generous range has helped on the performance front as well. Since its inception in 2015, XT has managed to produce a roughly 12% annual return. The various industries in its holdings have produced a smooth ride as well with a low three-year standard deviations of returns.
VanEck Semiconductor ETF (SMH)
Expense Ratio: 0.35%
The most advanced super computer and your washing machine have something in common. They both contain plenty of semiconductor power. Chips are everywhere these days, and demand has only continued to grow as technology has become more pervasive. So, betting on technologies’ “backbone” makes a ton of sense.
And the VanEck Semiconductor ETF (NASDAQ:SMH) is still one of the easiest ways to do just that.
There are plenty of semiconductor ETFs on the market these days, but SMH could win out due to its simplicity. The fund tracks a proprietary index that holds the 25 largest U.S.-listed companies involved in semiconductor production and equipment. With that, you get exposure to Nvidia (NASDAQ:NVDA), Texas Instruments (NASDAQ:TXN), Intel (NASDAQ:INTC) etc. We’re talking the big dogs. Moreover, SMH provides exposure both more advanced semiconductors and analog chips. This gives investors the full monty of demand potential — from super computers to your toaster.
With more than $8 billion in assets, low expenses and swift trading volume, the fund gives you all this in an enviable fashion.
With the current shortages on variety of chips and plenty of post-pandemic demand, SMH offers a quick and easy way to play near-term and long-term growth of technology.
First Trust NASDAQ Technology Dividend Index Fund (TDIV)
There’s this perception that technology stocks and ETFs are strictly about growth. That all technology firms plow excess cash — if they have any — back into the business.
That may have been true during the Dotcom days, but today’s environment is much different. Thanks to their generally high margins, steady reoccurring revenues and fast paces of growth, a lot of tech stocks produce ample free cash flows. So much so that some have become dividend champions over the years. In fact, the tech sector leads the market in overall dividend growth.
For income seekers, the current downtrend in tech allows them to pick up fast, growing yields on the cheap. The best way to do that is through the First Trust NASDAQ Technology Dividend Index Fund (NASDAQ:TDIV).
TDIV is the oldest and largest tech-focused dividend fund on the market with over $1.7 billion in assets. The ETF tracks an index of tech stocks that have paid a dividend within the past year, yield at least 0.5% and have not cut their dividends over the last year. All in all, the ETF is a who’s who of strong tech stocks with hefty cash flows.
These requirements produce a very strong yield indeed. Currently TDIV has a 12-month yield of 2.2%. That’s actually higher than the broader S&P 500. With the ETF, income seekers not only get a larger headline yield, but the potential for faster dividend growth as well.
The KraneShares CSI China Internet ETF (KWEB)
Expense Ratio: 0.7%
If the tech wreck has been bad here, it’s been apocalyptic overseas in China. Not only has there been the general selling of growth stocks, Chinese equities have come under fire on a variety of fronts. For one thing, the U.S. Securities and Exchange commission is cracking down on China’s lax auditing requirements and has already delisted several firms from U.S. exchanges. The regulatory authority has threatened to add more stocks to this list. Meanwhile, China itself has cracked down on the tech sector and its influence/power in the local economy.
All of it, has made China’s tech sector seem like dead money.
But as the saying goes, the time to buy is when there is blood in the streets.
Some of the ice is starting to thaw. Beijing has started to relax its controls on the tech sector and has started talking with the SEC on increasing audit compliance. Chinese tech is still risky. But ETFs can help reduce the risk a bit.
The $5.4 billion KraneShares CSI China Internet ETF (NYSEARCA:KWEB) is a great way to access the opportunity. KWEB tracks an index of China-based companies whose primary business are in internet-related sectors. The ETF’s holdings read like a who’s who of internet retailers, social media, gaming and travel sites in the nation. By using KWEB, investors can still tap China’s long-term potential and reduce single-stock risk. There’s no guarantee that China’s tech sector will rebound, but with its recent fall, there’s plenty of bargains in the region.
On the date of publication, Aaron Levitt held a LONG position in IGV. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.