There’s no shortage of high-quality technology-focused ETFs to consider scooping up going into March 2024 as the AI-driven rally looks to enter its next phase. Undoubtedly, there seems to be a growing number of naysayers who view the technology sector as lofty and long overdue for a violent retreat. Certainly, it’s been such a hot run for tech, especially the so-called Magnificent Seven group, which has been the leadership to drive markets out of their rut. But just because tech, specifically large-cap tech, is starting to get hot again doesn’t mean the rally will end in tears.
Compare the recent tech “melt-up” to the one that preceded the 2022 bear market, or worse, the 2000 dot-com bust, if you will. But I think the tech sector has legs in the form of earnings growth this time around. As AI looks to boost earnings by X%, valuations could rapidly contract, and today’s mega-cap tech plays may not be as expensive as they seem today based on their traditional valuation metrics.
Let’s check out three popular technology ETFs that look intriguing for those seeking a “passive” way to bet on the space.
Technology ETFs: Technology Sector SPDR Fund (XLK)
The Technology Sector SPDR Fund (NYSEARCA:XLK) is more than just a plain, vanilla tech-focused ETF; it’s a great way to bet on the heavyweight champs in the tech scene. Compared to other popular tech-focused indices, such as the Nasdaq 100, the XLK has more than its fair share of exposure to the two largest companies on Earth, Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL), with a 23% and 20% weighting to the two Magnificent Seven members, respectively.
Undoubtedly, there are downsides to being too “top-heavy” in the event of a tech-induced market pullback. And it can be a scarier ride to have more than 40% of one ETF’s fate tied to just two stocks. That said, if you’re a long-term investor who believes in the power of the two ageless wonders atop the XLK, I have zero issues recommending the XLK.
Heck, I’d argue that you don’t need to own every corner of the technology scene if you want to do well in tech’s AI-driven bull market. In fact, I believe it makes more sense to own a larger chunk of the bigger companies. In that regard, the XLK is a great pick for investors seeking quick and easy exposure to America’s impressive tech scene. It’s also a great technology ETF for those who don’t buy that big tech has to flop because of its growing influence on broader markets.
ARK Innovation ETF (ARKK)
Cathie Wood’s funds have endured a painful fall from their now-distant 2021 highs. And though ARK Invest’s flagship fund, the ARK Innovation ETF (NYSEARCA:ARKK), has been relatively flat since beginning to form a bottom back in late 2022, I do view the basket of what Wood refers to as disruptive innovators as intriguing while they’re down and out.
At around $48, the ARKK ETF is still down 69% from its all-time high of $156 and change. While I don’t expect lower rates and the rise of AI to spark a sudden move to new heights, I believe the ETF as a compelling (and now pretty cheap) way to bet on lower interest rates and the smaller players in the tech scene.
Retreating rates seem to be a given from here, but the rates’ expected trajectory is not the lone reason to embrace the ARKK. With so much damage done to the ETF’s constituents, I view ARKK as a one-stop-shop way to go bargain-fishing the less-loved corners of the tech scene.
ARK Autonomous Technology & Robotics ETF (ARKQ)
Sticking with the theme of Cathie Wood and ARK Invest, we have the ARK Autonomous Technology & Robotics ETF (NYSEARCA:ARKQ), which, like the ARKK fund, is down a great deal from its multi-year peak. Even if you’re not a fan of Cathie Wood, I think her funds offer broad exposure to a powerful investment theme at a reasonable price (0.75% expense ratio at the time of writing).
Just have a look inside the ARKQ ETF, and it’s hard not to be intrigued if you seek AI, autonomy, or robotics exposure beyond the Magnificent Seven. Undoubtedly, Tesla (NASDAQ:TSLA) is still the largest holding — the EV kingpin is no longer magnificent, in my opinion! But digging deeper into the fund, you’ll discover some very intriguing (and somewhat lesser-known) firms going all-in on AI innovation.
Take UIPath (NASDAQ:PATH) as an example of one intriguing automation play in the ARKQ ETF that’s more than worthy of a second look. Though battered, the play looks promising as we return to an era of low rates and greater appreciation for the capabilities of AI.
On the date of publication, Joey Frenette held shares of Apple and Microsoft. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
