The stock market has roared back to life in 2023 and has largely outperformed expectations. Investors have begun pouring back into the stock market in search of bargains. If you’re looking for a way to invest in the technology sector broadly, one option you might want to consider is a technology-focused exchange-traded fund or one of those top tech ETFs.
For those who are unaware, an ETF is a type of investment security that tracks the performance of a basket of stocks, bonds, commodities, or other assets. ETFs are traded on stock exchanges, just like individual stocks, and they offer several advantages for investors, including high liquidity, diversification, and lower costs.
In this article, we will look at three tech-focused ETFs that performed the best in 2023. These ETFs will cover different segments of the technology sector, encompassing multiple verticals such as software, cloud computing, and information technology.
Invesco QQQ Trust (QQQ)
The Invesco QQQ Trust (NYSEARCA:QQQ) is an ETF that invests in companies that are part of the Nasdaq-100 Index. The Nasdaq-100 Index is an index that tracks the performance of 100 of the largest non-financial companies listed on the Nasdaq stock exchange.
The index includes many of the most prominent and influential names in the tech sector, such as Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), Meta Platforms (NASDAQ:META), and Alphabet (NASDAQ:GOOG). QQQ is the best-performing broadly focused tech ETF in 2023, with an impressive return at just about 40% as of Friday, August 4th. The ETF holds 101 stocks, with the top three holdings being Apple, Microsoft, and Amazon. These companies are among the giants in the tech world, with dominant market positions and a loyal customer base.
QQQ has the potential to continue to do well this year because of several factors. The Nasdaq-100 Index has largely bounced back from last year’s lackluster performance. The index is now up nearly 34%, trouncing all other major indices and thus benefitting ETFs like QQQ. US tech equities are expected to benefit from the long-term trends of innovation and disruption, as new technologies emerge and transform various industries and markets. Generative AI has already pushed the shares of many AI and machine learning focused companies upwards in 2023.
Vanguard Information Technology Index Fund ETF (VGT)
The Vanguard Information Technology Index Fund ETF (NYSEARCA:VGT) is an ETF that invests in companies that are part of the MSCI US Investable Market Information Technology 25/50 Index. This index is rather diversified, giving investors exposure to stocks from large, mid-size and small U.S. companies in the information technology sector.
The information technology sector encompasses various sub-verticals of the technology industry, such as software, hardware, internet services, semiconductors, and IT consulting. VGT is one of the best-performing tech ETFs in 2023, returning more than 36% year-to-date. The ETF holds 367 stocks, with the top three holdings being Apple, Microsoft, and Nvidia (NASDAQ:NVDA). Apple and Microsoft are leaders in the consumer electronics space, while Nvidia creates graphics cards powering not only a number of PCs but also today’s generative AI.
Similar to the Invesco QQQ Trust, VGT also has the potential to continue to do well this year. The information technology sector will probably remain resilient, especially with US economic growth indicators coming in better than expected. Furthermore, the U.S. Federal Reserve has been able to bring inflation down significantly without tipping the US economy into a severe recession. This could sustain both consumer and business spending in the short and medium term.
iShares Expanded Tech-Software Sector ETF (IGV)
The iShares Expanded Tech-Software Sector ETF (NYSEARCA:IGV) is an ETF that invests in companies that are part of the S&P North American Expanded Technology Software Index. This index includes software stocks listed in both the United States and Canada. There is also exposure to North American companies from interactive home entertainment and interactive media and services industries. IGV happens to also be one of the best performing tech ETFs this year, with a 35% return YTD. The ETF holds 122 stocks, with the top three holdings being Adobe (NASDAQ:ADBE), Oracle (NYSE:ORCL), and Salesforce (NYSE:CRM).
The technological breakthroughs seen in artificial intelligence, machine learning, and quantum computing will continue to give IGV an upper hand in 2023. Companies, such as Oracle and Salesforce, have formulated plans to employ AI and ML tools in their software. Similarly, as Adobe works to close its acquisition of Figma, the iShares ETF will stand to benefit.
On the date of publication, Tyrik Torres 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.
