Etfs For Tech: Direct Investment Strategies

Exchange-traded funds (ETFs) are a great way to invest in the technology sector without the risks of individual stocks. Tech ETFs are an attractive option for investors looking for high growth potential and diversification. While it's impossible to know if investing in tech will guarantee massive gains in the long term, diversifying the companies in your portfolio through an ETF can help safeguard against risk. 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. Here are some of the best-performing tech ETFs in the market:

- VanEck Semiconductor ETF

- AXS Esoterica NextG Economy ETF

- Roundhill Magnificent Seven ETF

- MicroSectors FANG ETNs

- Pacer Data and Digital Revolution ETF

Vanguard Information Technology ETF

The Vanguard Information Technology ETF (VGT) is a heavily diversified but dedicated tech-sector fund. With $77.5- $79 billion in assets, it is perhaps the largest truly sector-specific technology ETF. It is also the most highly regarded tech fund by Morningstar's analysts, who give it five stars and a gold badge, indicating the highest conviction that the fund will outperform a relevant benchmark of its peers over a market cycle.

The Vanguard Information Technology ETF is also one of the more inexpensive offerings, charging just 0.1% annually in fees. This leading technology ETF is a passive fund that simply tracks the MSCI US Investable Market Information Technology 25/50 Index, which aims to track US tech stocks of all sizes. This leads to a portfolio of 314-317 stocks, with the top 10 names representing nearly 60% of total assets, with over 30% in Apple Inc. (AAPL) and Nvidia Corp. (NVDA) alone.

The Vanguard Information Technology ETF is a good choice for investors who want a simple and easy way to play the broad trends in technology.

Tech ETFs: Cybersecurity stocks

Tech ETFs are a great way to invest in the technology sector without the risks associated with individual stocks. Cybersecurity stocks are a particularly attractive area of the tech sector to invest in, given the increasing cost of cybercrime and the growing migration to cloud-based IT infrastructure.

First Trust NASDAQ Cybersecurity ETF (CIBR)

This ETF is one of the largest pure-play ETFs in the technology sector, with $6.6 billion in assets under management. It is made up of 29 cybersecurity company stocks, with large tech companies like Infosys, Broadcom, and Palo Alto Networks as its top three holdings. The fund has an annual expense ratio of 0.59%.

Amplify Cyber Security ETF (HACK)

The Amplify Cyber Security ETF has been around since 2014 and has $1.7 billion in assets. It is made up of 24 stocks, with Broadcom and Palo Alto Networks as its two largest holdings. The fund has an annual expense ratio of 0.6%.

Global X Cybersecurity ETF (BUG)

Launched in late 2019, the Global X Cybersecurity ETF has quickly scaled to $763 million in investor funds. It is one of the most concentrated ETFs on this list, with just 23 stocks, and is heavily weighted toward large cybersecurity software companies. Palo Alto Networks, Fortinet, and Check Point Software make up over 20% of the fund's total assets. The fund has outperformed its peers in its short history.

IShares Cybersecurity and Tech ETF (IHAK)

Launched in 2019, the iShares Cybersecurity and Tech ETF is made up of 40 different cybersecurity company stocks and other tech companies involved in cybersecurity. BlackRock, the issuer, charges a lower annual fee than many of its peers, at just 0.47%. While many of the large cybersecurity players are in the portfolio, it also includes cloud computing names in security-adjacent niches.

WisdomTree Cybersecurity Fund (WCBR)

The WisdomTree Cybersecurity Fund is the newest ETF on this list, with an inception date of January 2021. It has accumulated just over $100 million in assets so far, but it has a competitively priced offering at only 0.45% in annual fees. This ETF is one of the most concentrated funds on the list, with just 25 cybersecurity stocks. Hashicorp is the largest position, while Palo Alto Networks and CommVault Systems round out the top three spots.

Vanguard Information Technology ETF (VGT)

While not a pure-play cybersecurity ETF, the Vanguard Information Technology ETF is worth mentioning. It is a broad-based index of the U.S. technology sector and includes many cybersecurity companies and other large businesses involved in security. With an annual expense ratio of just 0.1% and 318 total holdings, it is a great way for investors to get passive exposure to the development of cybersecurity and other growth trends in technology.

Tech ETFs: Cloud computing

Cloud computing is the practice of using remote servers and shared resources to store, manage, process, and deliver data, rather than relying on a local network. This shift has lowered costs and improved reliability, performance, and security for business IT operations.

The cloud computing market is expected to grow at a rate of 21.2% per year between 2024 and 2030, according to Grand View Research. This growth will likely be driven by the proliferation of AI, which is generating vast amounts of data.

There are several ETFs that focus on cloud computing, including:

• Fidelity Cloud Computing ETF (FCLD): This ETF could benefit from the expected growth in the cloud computing market. It invests in a global selection of companies of all sizes that provide products or services to support the increased adoption of cloud computing. While it has a small portfolio of 53 stocks, it is well-diversified, with less than 40% of its portfolio in the top 10 names. It also includes medium-sized companies, such as data center REIT Digital Realty Trust Inc. (DLR).
• First Trust Cloud Computing ETF: This ETF is included in a list of cloud computing ETFs but no further information is provided.
• WisdomTree Cloud Computing Fund: This ETF is included in a list of cloud computing ETFs but no further information is provided.
• Global X Cloud Computing ETF (CLOU): This ETF invests in companies positioned to benefit from the increased adoption of cloud computing technology. Its holdings include Snowflake Inc, Shopify Inc, and Digital Realty Trust Inc. It spans multiple segments and includes both well-known companies and newcomers from around the world.
• IShares Future Cloud 5G and Tech ETF (IDAT): This ETF takes a global approach to cloud computing, investing in companies of all sizes from developed and emerging markets. Its top holdings include Nvidia and Broadcom Inc, but it also includes lesser-known companies like Arista Networks Inc and Pure Storage Inc. It has a fairly diverse portfolio of 47 stocks, with 76% based in the US.

Tech ETFs: Artificial intelligence

Artificial Intelligence (AI) is an area of computer science that focuses on creating intelligent machines that work and react like humans. AI ETFs are funds that invest in companies involved in the development of AI products or services, or those that spend a large amount on AI research and development.

Global X Robotics & Artificial Intelligence ETF (BOTZ)

BOTZ is one of the largest and most established AI ETFs, with $2.5 billion in assets under management. It focuses on companies that are already making profits from next-generation AI technology, such as Intuitive Surgical, ABB, and Keyence. BOTZ has a diversified portfolio of 44 stocks and an expense ratio of 0.68%.

IShares U.S. Technology ETF

This ETF provides exposure to a broad range of U.S. technology companies, with Apple, Microsoft, and Nvidia as its top holdings. It has $78.8 billion in assets under management and a low expense ratio of 0.10%.

First Trust Nasdaq Artificial Intelligence & Robotics ETF (ROBT)

ROBT tracks the Nasdaq CTA Artificial and Robotics index, which includes companies engaged in AI and robotics across various sectors. It holds 107 stocks, with ServiceNow and Pegasystems as its top holdings. The fund offers an expense ratio of 0.65% and a dividend yield of 0.27%.

Invesco AI and Next Gen Software ETF (IGPT)

IGPT tracks the STOXX World AC NexGen Software Development Index, which includes 100 companies from across the globe that generate revenue from software and AI. Its top holdings include Meta Platforms, Alphabet, and Nvidia. The ETF has a 0.6% expense ratio.

Global X Artificial Intelligence & Technology ETF (AIQ)

AIQ offers broad exposure to the AI value chain, with a portfolio of 84 companies, including Alibaba Group, Oracle, and Meta Platforms. It has a diversified geographic allocation, with 49% of its portfolio in U.S. stocks and 31% in Japanese stocks. AIQ has a 0.68% expense ratio.

REX AI Equity Premium Income ETF (AIPI)

AIPI employs a covered call strategy to generate income by selling call options on its individual holdings. It has a high distribution rate of 34.8% and provides exposure to a range of AI companies.

AI ETFs provide a great opportunity to invest in the rapidly growing field of artificial intelligence. By choosing the right ETF, investors can gain diversified exposure to some of the most innovative companies in the world.

Tech ETFs: Risk and reward

Tech ETFs (exchange-traded funds) are a stable, lower-risk way to invest in technology without the volatility of individual stocks. Tech ETFs are an attractive option for investors seeking high growth potential and diversification. They offer exposure to a wide range of innovators or targeted groups of tech stocks harnessing rising trends.

Tech ETFs are considered less risky than investing in individual tech stocks because they hold dozens or even hundreds of tech stocks, meaning the risk is spread out. However, tech stocks tend to carry more volatility than other sectors, with a higher risk/reward profile. Tech ETFs can be a smart alternative to stock picking, but investors still need to research the underlying holdings of each ETF.

Tech ETFs can be either passive index-matching funds or actively managed funds, which may offer higher returns. They can also be sector-wide or specialised, such as focusing on semiconductors, cybersecurity, cloud computing, robotics, AI, or 5G.

• VanEck Semiconductor ETF
• AXS Esoterica NextG Economy ETF
• Roundhill Magnificent Seven ETF
• MicroSectors FANG ETNs
• Pacer Data and Digital Revolution ETF

Some of the largest and most popular tech ETFs include:

• Vanguard Information Technology ETF (VGT)
• Technology Select Sector SPDR ETF (XLK)
• Invesco QQQ Trust (QQQ)
• IShares U.S. Tech Breakthrough Multisector ETF (TECB)
• Fidelity MSCI Information Tech ETF (FTEC)
• Fidelity Cloud Computing ETF (FCLD)
• SPDR NYSE Technology ETF (XNTK)
• IShares Future Cloud 5G and Tech ETF (IDAT)

Frequently asked questions