7 Best Tech ETFs To Ride The Earnings Wave
Instead of going the stock-picking route, look to tech ETFs for a basket of earnings winners
With the FAANG stocks accounting for a massive percentage of the S&P 500’s 2018 upside, it is not surprising that investors remain fond of technology exchange-traded funds (ETFs). The FAANG quintet, comprised of Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), dominate the lineups of scores of tech ETFs and related funds.
For example, the tech-heavy Invesco QQQ (NASDAQ:QQQ), which tracks the Nasdaq-100 Index, allocates almost 40% of its combined weight to the FAANG group. As of July 16, QQQ is up 15.5% year-to-date compared to 5.6% for the S&P 500.
Over the near-term, tech ETFs merit consideration for another reason: earnings. Before the end of July, eight of the top 10 components in the Technology Select Sector deliver quarterly results. That benchmark is the underlying index for the Technology Select Sector SPDR (NYSEARCA:XLK), the largest tech ETF by assets.
Here are some tech ETFs worthy of investors’ consideration over the near term.
Best Tech ETFs to Buy: Fidelity MSCI Information Tech ETF (FTEC)
Expense ratio: 0.084% per year, or $8.40 on a $10,000 investment.
Fidelity sponsors some cost-effective ETFs and its lineup of sector funds, including the Fidelity MSCI Information Tech ETF (NYSEARCA:FTEC), is the industry’s least expensive.
For conservative investors looking for inexpensive, broad-based exposure to this sector, this tech ETF makes a lot of sense. FTEC has 345 holdings, but as a cap-weighted fund, this Fidelity offering is dominated by some of the sector’s most venerable names. Apple and Microsoft (NASDAQ:MSFT) combine for about 24% of FTEC’s roster.
This tech ETF has outperformed the equivalent Vanguard fund over the past three years and is doing so on a year-to-date basis. Fidelity clients can also trade FTEC on a commission-free basis. FTEC was one of nearly 10 tech ETFs that hit all-time highs on July 17.
Best Tech ETFs to Buy: iShares North American Tech-Software ETF (IGV)
Expense ratio: 0.48% annually, or $48 on a $10,000 stake.
In the world of tech ETFs, there are prosaic broad-based plays, such as the aforementioned FTEC, and more focused industry funds. The iShares North American Tech-Software ETF (CBOE:IGV) fits in the latter category. As its name implies, this tech ETF is dedicated to software stocks.
IGV tracks the S&P North American Technology-Software Index and holds 64 stocks. This tech ETF focuses on three areas of the software universe: application software, systems software and home entertainment software.
Using IGV as a barometer, software stocks are pricier than the broader tech space. This tech ETF sports an earnings multiple north of 48, which is well in excess of the ratios on diversified tech ETFs. Still, IGV is higher by more than 26% year-to-date and recently hit a record high.
Best Tech ETFs to Buy: Invesco S&P SmallCap Information Technology ETF (PSCT)
Expense ratio: 0.29% per year, or $29 on a $10,000 position.
As has been widely documented in recent months, small-cap stocks have been surging. At the sector level, tech has been getting on that act. The Invesco S&P SmallCap Information Technology ETF (NASDAQ:PSCT) is up nearly 13% year-to-date, putting this tech ETF slightly ahead of the S&P SmallCap 600 Index.
While PSCT does offer tempting upside potential at a time when small-cap and tech stocks are outperforming, this tech ETF is not for everyone. PSCT is more volatile than large-cap equivalents and broader small-cap benchmarks. And it goes without saying this tech ETF offers no direct FAANG exposure.
Home to 95 stocks with an average market capitalization of $1.85 billion, PSCT allocates over 48% of its combined weight to electronic component makers and semiconductor companies. Not surprisingly, this tech ETF has a growth feel to it. Nearly 47% of PSCT’s small-cap names are classified as growth stocks compared to just 19.18% with the value designation.
Best Tech ETFs to Buy: First Trust Nasdaq Technology Dividend Index Fund (TDIV)
Expense ratio: 0.50% per year, or $50 on a $10,000 investment.
From one tech ETF that conservative investors may want to avoid in PSCT to one they may want to embrace in the First Trust Nasdaq Technology Dividend Index Fund (NASDAQ:TDIV).
Good news: technology has been one of the biggest contributors to S&P 500 dividend growth for several years now. Additionally, TDIV is usually less volatile than broader tech ETFs, like FTEC and QQQ.
However, there are some trade-offs with this tech ETF. First, while less volatile, TDIV has trailed more diversified peers over longer holding periods. Second, TDIV can allocate up to 20% of its weight to traditional telecommunications stocks. That helps when it comes to income and yield, but can be a drag when interest rates rise due to the bond-like traits of old-line telecom stocks.
Microsoft and Apple combine for over 16% of this tech ETF’s weight.
Best Tech ETFs to Buy: ARK Innovation ETF (ARKK)
Annual fee: 0.75%, or $75 on a $10,000 position.
The ARK Innovation ETF (NYSEARCA:ARKK) is not your grandfather’s tech ETF and that is alright. This actively managed tech ETF is a focused fund with a lineup ranging from 40 to 55 holdings, but the fund’s managers go well beyond the traditional view of the technology sector.
ARKK holdings include companies with fintech exposure, clean energy firms, genomics research companies and next-generation internet firms. Familiar names among ARKK’s top 10 holdings currently include Tesla (NASDAQ:TSLA) and Twitter (NYSE:TWTR).
ARKK justifies its above-average fee with above-average returns. Over the past three years, ARKK has been a shining star among otherwise lethargic actively managed funds, posting a gain of 127%. That is well ahead of the returns offered by traditional tech ETFs over the same period.
Best Tech ETFs to Buy: Reality Shares Nasdaq NexGen Economy ETF (BLCN)
Expense ratio: 0.68% annually, or $68 on a $10,000 investment.
Do not let the name of the Reality Shares Nasdaq NexGen Economy ETF (NASDAQ:BLCN) fool you. This tech ETF is a blockchain fund and one of the first ones of its kind to list in the U.S. Regulators here forbid the use of the term “blockchain” in fund names, so issuers have to work around that with more unique interpretations.
BLCN, which launched in January, follows the Reality Shares Nasdaq Blockchain Economy Index. That benchmark “is designed to measure the returns of companies that are committing material resources to developing, researching, supporting, innovating or utilizing blockchain technology for their use or for use by others,” according to the issuer.
Blockchain is often linked to the cryptocurrency space. That is an understandably tantalizing thesis, but the long-term implications for BLCN go beyond crypto because companies in myriad traditional industries (financial services, healthcare and more) are expected to adopt blockchain technologies in their business practices in the years ahead.
Best Tech ETFs to Buy: ETFMG Video Game Tech ETF (GAMR)
Annual fee: 0.75%, or $75 on a $10,000 position.
After sliding about 4% over the past month, the ETFMG Video Game Tech ETF (NYSEARCA:GAMR) could be a buy-on-the-dip candidate for aggressive investors. GAMR, the first ETF dedicated to the video game investment theme, holds 72 stocks. This tech ETF has some notable, long-term momentum.
“Video game stocks are riding a strong wave of momentum, as the industry is enjoying more than a short-term fad,” InvestorPlace reported earlier this month. “In fact, game stocks are riding a secular trend, benefiting from increased sales and engagement. Profitability continues to climb as in-game purchases and easy over-the-air updates make gaming more fun and extend the product’s life.”
None of GAMR’s holdings exceed weights of 2.46% and this tech ETF’s roster includes software makers (video game makers), console producers like Microsoft and Nintendo (OTCMKTS:NTDOY) and mobile game developers.
Todd Shriber does not own any of the aforementioned securities.
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- 5 Stocks That Could Double In the Next 5 Years
Category: ETFs
