The technology sector has had a particularly stellar run in recent years, considerably outperforming the market. Here we’ll review the best tech ETFs to get in on the action.
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Introduction – Why Tech?
The tech sector is comprised of companies related to software, electronics, internet, computers, and other technological products and services. Think Apple, Microsoft, Adobe, etc. Tech stocks are growth stocks, reinvesting profits into R&D and future projects to drive growth through innovation and invention. They usually pay low or no dividends.
The tech sector has expanded over the years as more internet- and software-focused companies have emerged. It is now by far the largest sector in the stock market, comprising over 25% of the total market by weight. Every corner of the modern economy touches technology in some way. Tech has been a major contributor to the growth of the total stock market in recent years, and specifically Big Tech (Amazon, Apple, Google, Microsoft, etc.). Because of this concentration of weight, constituents of the tech sector were reshuffled in late 2018 with a redefining of the GICS, e.g. Amazon went to Consumer Discretionary, Facebook went to Communication, etc.
Tech has vastly outpaced the market over the last decade:
Many speculate that tech will continue its meteoric rise. Let’s look at the best tech ETFs.
The 5 Best Tech ETFs
Below are the 5 best tech ETFs:
VGT – Utilities Select Sector SPDR Fund
The Vanguard Information Technology ETF (VGT) is one of the most popular tech ETFs on the market, with over $38 billion in assets. The fund seeks to track the MSCI US Investable Market Information Technology 25/50 Index. This ETF has over 320 holdings and an expense ratio of 0.10%.
XLK – Technology Select Sector SPDR Fund
The Technology Select Sector SPDR Fund (XLK) is another popular broad tech ETF. The fund was established in 1998 and seeks to track the Technology Select Sector Index. This ETF has 72 holdings. Whereas VGT above provides about 10% mid-cap growth exposure, XLK is exclusively large-caps. XLK has an expense ratio of 0.13%.
QQQ – Invesco QQQ Trust
The Invesco QQQ Trust is the most popular fund on this list, with over $130 billion in assets. This ETF tracks the NASDAQ-100 Index. While The NASDAQ-100 is not really a tech index, QQQ may actually provide the broadest diversification to what was previously “tech” after the aforementioned sector restructuring. At the time of writing, the fund has sector exposures of 48% Technology, 20% Communication, and 17% Consumer Discretionary. This gets you access to all the Big Tech players in one single fund – Apple, Amazon, Microsoft, Facebook, Google, Netflix, and more. This ETF has an expense ratio of 0.20%.
FDN – First Trust Dow Jones Internet Index Fund
Prefer to specifically target internet companies like Amazon, Facebook, Paypal, Google, Netflix, and Twitter? The First Trust Dow Jones Internet Index Fund has become extremely popular in recent years due to the success of these companies; it has over $10 billion in assets. The fund was established in 2006, has 42 holdings, and seeks to track the Dow Jones Internet Composite Index. This narrower targeting comes at a price; this ETF has an expense ratio of 0.52%.
Where to Buy These Tech ETFs
All these tech ETFs are available on M1 Finance. The broker has zero trade commissions and zero account fees, and offers fractional shares, dynamic rebalancing, and a modern, user-friendly interface and mobile app. I wrote a comprehensive review of M1 Finance here.
Disclaimer: While I love diving into investing-related data and playing around with backtests, I am in no way a certified expert. I have no formal financial education. I am not a financial advisor, portfolio manager, or accountant. This is not financial advice, investing advice, or tax advice. The information on this website is for informational and recreational purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or transact in any of the products mentioned. Do your own due diligence. Read my lengthier disclaimer here.