What is a tech ETF?
Tech ETFs are an exchange-traded fund that invests in companies in the technology sector. Tech ETFs include companies that create and distribute hardware, such as computers, smartphones, semiconductors, and other electronics, and software, such as artificial intelligence, cybersecurity, and cloud technology.
These ETFs offer high-growth potential to investors; hence they are an attractive option. Since it is impossible to tell which tech company can provide massive gains, a tech ETF offers diverse exposure which can help mitigate risk.
There are some excellent ETFs that focus either on the overall tech sector or a specific part of it. These can give you exposure to the high-potential tech space in your portfolio but without the risks associated with investing in individual companies.
Benefits of investing in Tech ETFs
- Diversification – ETFs are a great way to diversify one’s portfolio. They are composed of different stocks, which reduces the overall risk exposure to the portfolio
- Growth potential – Technology ETFs often focus on companies that are at the forefront of innovation and have high growth potential. As a result, investors get to benefit from the growth of these companies and the whole technology sector.
- Ease of access – Tech ETFs are highly liquid assets that can easily be bought and sold on the stock market
- Lower fees – Tech ETFs often have lower fees than actively managed mutual funds or individual stocks. This is especially beneficial for investors seeking low-cost investments which helps keep their costs low
- Broad exposure – Many tech ETFs invest in companies from all around the world, which can be beneficial for investors in the long run.
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Disadvantages of investing in Tech ETFS:
- Limited control – when investing in an ETF, investors do not have control over the underlying securities held in the ETF and cannot make individual security-level investment decisions
- Trading costs – while ETFs have lower expense ratios than mutual funds, there are still trading costs associated with buying and selling shares of an ETF, which can add up over time
- Liquidity – while ETFs are generally more liquid than mutual funds, some ETFs may have lower trading volumes and higher bid-ask spreads, which can make it more difficult to trade shares at a fair price
- Tracking errors – ETFs are designed to track an underlying index, but there may be slight deviations in performance due to factors such as trading costs, taxes, and cash holdings
- Lack of personalization – while ETFs can provide broad exposure to an asset class or industry, they do not allow for personalization or customization of investment portfolios to meet the individual investment objective
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List of the Best Tech ETFs
| Sr. | ETF | Symbol | Total Assets |
| 1. | Vanguard Information Technology ETF | VGT | $65 billion |
| 2. | Technology Select Sector Spdr ETF | XLK | $47 billion |
| 3. | Vaneck Semiconductor ETF | SMH | $9 billion |
| 4. | Ishares Cybersecurity And Tech ETF | IHAK | $564 million |
| 5. | Invesco QQQ ETF | QQQ | $187 billion |
| 6. | Invesco S&P 500 Equal Weight Technology ETF | RSPT | $3 billion |
| 7. | Ark Innovation ETF | ARKK | $8 billion |
| 8. | Global X Cybersecurity ETF | BUG | $ 698.43 million |
| 9. | First Trust NASDAQ Cybersecurity ETF | CIBR | $ 5 billion |
| 10. | Defiance Quantum ETF | QTUM | $ 165.9 million |
Vanguard Information Technology ETF
Vanguard is well-known for its low-cost index funds. This ETF seeks to track the performance of a benchmark index that measures the investment return of stocks in the information technology sector. It is passively managed, using a full-replication strategy when possible and a sampling strategy if regulatory constraints dictate. This ETF includes stocks of companies that serve the electronics and computer industries or that manufacture products based on the latest applied science.
The Vanguard Information Technology ETF certainly falls into this category, with a rock-bottom 0.10 % expense ratio. The ETF tracks a broad index of U.S. tech companies of all sizes. However, it is a market cap-weighted ETF, so its top holdings make up a larger proportion of its assets.
The top three holdings account for almost 50% of the fund’s total assets, which are:
- Apple
- Microsoft
- Nvidia
The ETF’s year-to-date performance shows a return of 33.95 %. It holds a total of 322 stocks in its portfolio. The majority of its shareholding is in the application software sector.
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Technology Select Sector SPDR ETF
The Technology Select Sector SPDR Fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Technology Select Sector Index (the “Index”). This ETF seeks to provide an effective representation of the technology sector of the S&P 500 Index. It also seeks to provide precise exposure to companies from technology hardware, storage, and peripherals; software; communications equipment; semiconductors and semiconductor equipment; IT services; and electronic equipment, instruments, and components. This tech ETF allows investors to take strategic or tactical positions at a more targeted level than traditional style-based investing.
The Technology Select Sector Index seeks to provide an effective representation of the technology sector of the S&P 500 Index. The Index includes companies from the following industries: technology hardware, storage, and peripherals; software; communications equipment; semiconductors and semiconductor equipment; IT services; and electronic equipment, instruments, and components.
The top three holdings account for almost 50% of the fund’s total assets, which are:
- Apple
- Microsoft
- Nvidia
The ETF’s year-to-date performance shows a return of 43.65 %. This ETF was created in 1988 and has an expense ratio of 0.1 %. It has a total of 65 holdings.
Vaneck Semiconductor ETF
VanEck Semiconductor ETF seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS® US Listed Semiconductor 25 Index (MVSMHTR), which is intended to track the overall performance of companies involved in semiconductor production and equipment.
The key features of this ETF are:
- Highly Liquid Companies – The index seeks to track the most liquid companies in the industry based on market capitalization and trading volume
- Industry Leaders – Index methodology favors the largest companies in the industry
- Global Scope – The portfolio may include both domestic and U.S.-listed foreign companies allowing for enhanced industry representation
The top three holdings account for almost 35 % of the fund’s total assets, which are:
- Nvidia
- Taiwan Semiconductor Manufacturing Co
- Broadcom Inc
The ETF’s year-to-date performance shows a return of 47.63 %. This ETF was created in 2011 and has an expense ratio of 0.35 %.
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Ishares Cybersecurity And Tech ETF
The iShares Cybersecurity and Tech ETF seek to track the investment results of an index composed of developed and emerging market companies involved in cyber security and technology, including cyber security hardware, software, products, and services.
This ETF offers:
- Access to companies at the forefront of cybersecurity innovation.
- Exposure to global stocks along the full value chain of cybersecurity and tech industries
- Seek long-term growth with companies that can shape the global economic future
The top holdings are:
- Science Applications International
- Booz Allen Hamilton Holding Corp C
- Tenable Holdings Inc
- Vmware Class A Inc
- Qualys Inc
- Caci International Inc Class A
- Akamai Technologies Inc
- Cyber-Ark Software Ltd
- Check Point Software Technologies
This ETF was created in 2019 and has an expense ratio of 0.47 %. It has a total of 37 holdings.
Invesco QQQ ETF
Invesco QQQTM is an exchange-traded fund based on the Nasdaq-100 Index. The Fund will, under most circumstances, consist of all of the stocks in the Index. The Index includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market based on market capitalization. The Fund and the Index are rebalanced quarterly and reconstituted annually.
The top holdings account for almost 45 % of the fund’s total assets, which are:
- Apple Inc.
- Microsoft Corp
- Amazon.com Inc
- NVIDIA Corp
- Tesla
- Meta Platforms Inc Class A
The ETF’s year-to-date performance shows a return of 39.35 %. This ETF has an expense ratio of 0.2 %. It has a total of 101 holdings.
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Invesco S&P 500 Equal Weight Technology ETF
The Invesco S&P 500 Equal Weight Technology ETF (Fund) is based on the S&P 500 Equal Weight Information Technology Index (Index). The Fund will invest at least 90 % of its total assets in securities that comprise the Index. The Index equally weights stocks in the information technology sector of the S&P 500 Index. The Fund and the Index are rebalanced quarterly.
Effective on Tuesday, June 6, 2023, the Fund’s ticker changed from RYT to RSPT. No other changes were made to the Fund.
The top holdings of the fund are:
- CDW Corp/DE
- Gen Digital Inc
- Intuit Inc.
- EPAM Systems Inc.
- NXP Semiconductors NV
- Cognizant Technology Solutions Corp
- Adobe Inc.
The ETF’s date return is 59.41 %. This ETF was created in 2006 and has an expense ratio of 0.4 %. It has a total of 67 holdings.
Ark Innovation ETF
ARKK is an actively managed Exchange Traded Fund (ETF) that seeks long-term growth of capital by investing under normal circumstances primarily (at least 65% of its assets) in domestic and foreign equity securities of companies that are relevant to the Fund’s investment theme of disruptive innovation.
Benefits of Investing in this tech ETF:
- Exposure to Innovation: Aims for thematic multi-cap exposure to innovation across sectors. ARK believes the securities held in ARKK present the best risk-reward opportunities from ARK’s innovation-based themes.
- Growth Potential: Aim to capture long-term growth with low correlation relative returns to traditional growth strategies and negative correlation to value strategies.
- Tool for Diversification: Offers a tool for diversification due to little overlap with traditional indices. It can be a complement to traditional value/growth strategies.
- Grounded in Research: Combines top-down and bottom-up research in portfolio management to identify innovative companies and convergence across markets.
- Cost Effective: Provides a lower cost alternative to mutual funds with true active management in an Exchange Traded Fund (ETF) that invests in rapidly moving themes
The top holdings of the fund are:
- Tesla Inc.
- ROKU Inc.
- Coinbase Global
- Zoom Video Comm
- Block Inc.
The ETF’s year-to-date return is 41.34 %. This ETF was created in 2014 and has an expense ratio of 0.75 %. It has a total of 35-55 holdings.
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Global X Cybersecurity ETF
The Global X Cybersecurity ETF (BUG) seeks to invest in companies that stand to potentially benefit from the increased adoption of cybersecurity technology, such as those whose principal business is in the development and management of security protocols preventing intrusion and attacks to systems, networks, applications, computers, and mobile devices.
The Global X Cybersecurity ETF (BUG) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Index Cybersecurity Index.
Benefits of Investing in this tech ETF:
- High Growth Potential – As our personal and professional lives move online, protecting sensitive data grows more critical. Forecasts suggest global spending on cybersecurity solutions could grow from $150bn in 2021 to more than $415bn in 2030
- Long-Term, Global Challenge – Cybersecurity is a persistent global concern, affecting both public and private sector entities seeking to protect against the increased risk of ransomware attacks and other online threats.
- Unconstrained Approach – The realm of cybersecurity extends far beyond personal computers, reaching an ever-multiplying number of devices and applications. BUG invests accordingly, cutting across the traditional sector and geographic definitions.
The top holdings of the fund are:
- Zscaler Inc
- Crowdstrike Ho-A
- Palo Alto Networks Inc
- Check Point Software Tech
- Varonis Systems Inc
- Qualys Inc
- Tenable Holdings Inc
- Okta Inc
- Fortinet Inc
- Cyberark Software
The ETF’s year-to-date return is 22.5 %. This ETF was created in 2019 and has an expense ratio of 0.51 %. It has a total of 23 holdings.
First Trust NASDAQ Cybersecurity ETF
The First Trust Nasdaq Cybersecurity ETF is an exchange-traded fund. The Fund seeks investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of an equity index called the Nasdaq CTA Cybersecurity Index. The Nasdaq CTA Cybersecurity Index is designed to track the performance of companies engaged in the cybersecurity segment of the technology and industrial sectors. It includes companies primarily involved in the building, implementation, and management of security protocols applied to private and public networks, computers, and mobile devices in order to provide protection for the integrity of data and network operations.
First Trust NASDAQ Cybersecurity ETF primarily holds software and IT companies. it also branches out from pure tech to more diversified industries, including aerospace and defense with companies like Thales SA (HO.FP), which manufactures defense and aerospace equipment, and military contractor Booz Allen Hamilton Holding Corp. (BAH).
The top holdings of this ETF are:
- Cisco Systems, Inc.
- Infosys Limited (ADR)
- Broadcom Inc. 6.11%
- Palo Alto Networks, Inc.
- Fortinet, Inc.
- Leidos Holdings, Inc.
The ETF’s year-to-date return is 17.56 %. This ETF was created in 2015 and has an expense ratio of 0.6 %. It has a total of 35 holdings.
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Defiance Quantum ETF
Defiance Quantum ETF holds companies on the forefront of machine learning, quantum computing, cloud computing, and other transformative computing technologies” by tracking the BlueStar Quantum Computing and Machine Learning Index (BQTUM), which in turn tracks 71 global stocks of all sizes.
Index components are assigned an equal weight subject to a liquidity overlay, index components are reviewed semi-annually for eligibility, and the weights are reset accordingly.
Benefits of Investing in this ETF
- Quantum Fund – Quantum Computing brings paradigmatic changes in simulation, optimization, and sampling capabilities.
- Machine Learning -Finance, risk management, cybersecurity, materials science, energy, and logistics will all be transformed by the implementation of QC-supported ML.
- Artificial Intelligence – The AI revolution is upon us. Quantum supremacy has the potential to supercharge the power of AI toward unprecedented sophistication.
- Next Gen Disruptive Technology – QC’s potential has been analogized to that of the first PCs – undefined yet boundless.
The top holdings of this tech ETF are:
- Ionq Inc
- Rigetti Computing Inc
- Jsr Corp
- Coherent Corp
- Booz Allen Hamilton Hldg Corp Cl A
- Alibaba Group Hldg Ltd
- NXP Semiconductors N V
- Asustek Computer
- Nvidia Corporation
- Hewlett Packard Enterprise Co Com
The ETF’s year-to-date return is 35.6 %. This ETF was created in 2018 and has an expense ratio of 0.4 %. It has a total of 71 holdings.
CONCLUSION
Technology ETFs are a great way of investing in the sector and profiting from long-term growth without concentrating on individual stocks. One of the most popular ETFs are those that hold a huge portion of investment in the cybersecurity and semiconductor industries. These are especially popular among investors. ETFs are more liquid and easier to invest in than mutual funds, which is why many investors favor ETFs.
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