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The technology sector is known for its rapid pace of innovation, making it an exciting area for investors. If you’re considering investing in tech, a tech exchange-traded fund (ETF) could be a smart choice. Investing in a tech ETF offers a convenient way to gain exposure to the sector without the need to analyze individual companies. Additionally, ETFs provide diversification, helping to mitigate risk compared to investing in individual tech stocks.
Below are some top tech ETFs to consider for your investment portfolio, based on data as of Sept. 10, 2024.
Types of Tech ETFs
The tech sector, classified as “information technology” under the GICS system, can be broken down into three main industry groups:
- Software and services – Includes software companies and IT services providers.
- Technology hardware and equipment – Encompasses communications equipment, technology hardware, storage, peripherals, and electronic equipment.
- Semiconductors and semiconductor equipment – Includes companies involved in semiconductor manufacturing and related equipment production.
For broad exposure to the tech sector, there are ETFs available that invest across various sub-sectors, offering a diversified portfolio of tech companies.
Top Tech ETFs
1. Best Software & Services ETF
iShares Expanded Tech-Software Sector ETF (IGV)
This ETF tracks an index comprising North American software and interactive media companies. Key holdings include Salesforce, Microsoft, and Adobe.
- 5-year returns (annualized): 15.1%
- Expense ratio: 0.41%
- Dividend yield: 0.00%
2. Best Internet ETF
First Trust Dow Jones Internet ETF (FDN)
Designed to mirror the Dow Jones Internet Composite Index, this ETF focuses on U.S. internet companies. Top holdings include Amazon, Netflix, and Meta Platforms.
- 5-year returns (annualized): 7.2%
- Expense ratio: 0.51%
- Dividend yield: n/a
3. Best Semiconductor ETF
iShares Semiconductor ETF (SOXX)
This ETF tracks a U.S.-listed semiconductor industry index. Major holdings include NVIDIA, Broadcom, and Advanced Micro Devices.
- 5-year returns (annualized): 25.2%
- Expense ratio: 0.35%
- Dividend yield: 0.6%
4. Best Diversified Tech ETF
Vanguard Information Technology ETF (VGT)
This ETF follows an information technology sector benchmark index, offering diversified exposure to the sector. Top holdings include Apple, Microsoft, and NVIDIA.
- 5-year returns (annualized): 21.5%
- Expense ratio: 0.10%
- Dividend yield: 0.6%
Key Factors to Consider in an ETF
When evaluating ETFs, it’s essential to consider several aspects to ensure you are making informed investment decisions:
- Sub-sector Focus – Different sub-sectors within tech may respond differently to market conditions, so understanding the specific companies held by an ETF is crucial.
- Investment Track Record – Reviewing the historical performance of an ETF can provide insights into its potential future performance.
- Expense Ratio – Monitoring the expense ratio helps assess the ongoing costs of owning the fund.
Additionally, larger ETFs typically offer lower expense ratios due to economies of scale, making cost efficiency an important factor in selecting an ETF.
Investing in Tech ETFs
While tech ETFs provide a convenient way to invest in the sector, understanding the specific sub-sectors is still important. Careful consideration of the sectors you are investing in can help optimize your investment returns.
Whether you choose to focus on semiconductor companies or software firms, each sub-sector offers unique opportunities and risks. By selecting the right ETF based on your investment goals, you can capitalize on the growth potential of the tech sector.
Conclusion
Investors seeking exposure to the tech sector have a range of ETF options available, each offering distinct advantages. By understanding the different sectors and the risks associated with each ETF, investors can make informed decisions to align with their investment objectives. Diversified index funds remain a reliable choice for those seeking broad exposure to the market while minimizing sector-specific risks.
— This article has been updated with contributions from Brian Baker at Bankrate.
Editorial Disclaimer: It is recommended that all investors conduct independent research before making investment decisions. Past performance does not guarantee future results in investment products.