Technology stocks have been highly volatile in the last few months, with big-name picks like Apple (AAPL) and Facebook (FB) coming under pressure. But long-term investors should know the tech sector holds great promise, and deserves a major position in any portfolio. Roughly 20 percent of the S&P 500's (.SPX) value is tech stocks – the largest single sector among any of the 11 major industry groups. If you're looking beyond the short-term roller-coaster ride of tech stocks to long-term growth, or simply if you want to make a swing trade on what you think are bargain valuations, here are nine exchange-traded funds with different ways of playing tech stocks.
Technology Select Sector SPDR Fund (XLK)
The largest tech-focused ETF by assets with over $17 billion under management, the XLK fund is a simple and effective way to play the sector. Comprised of about 70 large-cap technology companies, XLK touches a wide range from software to semiconductors to consumer technology such as smartphones and tablets. One potential drawback is the fund is dominated by the big and familiar players, with Microsoft Corp. (MSFT) at about 18 percent of the portfolio and Apple representing another 16 percent. Those are two of the most popular stocks for many traders so perhaps you'll be OK with that emphasis on these names, but it's something to note.
Vanguard Information Technology ETF (VGT)
For a slightly broader play of the tech sector, this Vanguard ETF is a good alternative. With more than 300 holdings, you’ll get exposure to favorites like Apple and Microsoft but also a wide array of small and mid-sized companies. The fund is not without its quirks, however, with payments processor Visa (V) as one of the top five components. Sure, Visa is increasingly interested in using mobile technologies to tap into future growth, but in many ways the company is credit cards and transaction fees. Still, VGT is worth a look if you're looking to cast a wider net and comfortable with a generous definition of tech stocks.
iShares Global Tech ETF (IXN)
A potential drawback of XLK and VGT is their U.S.-focused approach. It's undeniable that this is a global age of technological innovation, as evidenced by any of your friends or family that own a Samsung Electronics Co. (SSNLF) smartphone or television. This iShares fund includes some of the big U.S. names that make the top of the list for other funds, but also global powerhouses like Korea’s Samsung or Taiwan Semiconductor Manufacturing Co. (TSM) that provides components to many other tech firms around the world. That ensures that your focus on the tech sector is diversified across geography.
Invesco S&P 500 Equal Weight Technology ETF (RYT)
Another strategy that relies on the largest U.S. tech stocks is to take a much more diversified investment with this equal-weight ETF. The RYT fund is structured so its roughly 70 components are as equally represented as possible through regular rebalancing. This is an important way to get true diversification in a tech ETF. After all, investors who really want to be overweight Apple and Microsoft can just buy the stocks and forget about any exchange-traded product. Fund investors won't be as tapped in to these stocks when they surge, but will be more protected if and when they fall.
SPDR FactSet Innovative Technology ETF (XITK)
What if you are less concerned about reducing risk and more interested in tapping into the tremendous growth potential of 21st century technology firms? With the XITK fund, you can avoid some of the mature large-cap tech stocks that bog down the typical tech ETF and go right to fast-growing and more disruptive companies. While there are some familiar names like Netflix (NFLX), there are a host of others. According to the fund’s mission, it seeks holdings with “robust revenue growth that may provide leading-edge products and services.” That ensures investors get stocks like NFLX but also up-and-coming picks like artificial intelligence and machine learning play Cloudera (CLDR).
Invesco Nasdaq Internet ETF (PNQI)
Instead of focusing on a quantitative metric like revenue growth, some investors may want to focus on the next generation of tech stocks that are cashing in on the connective power of the internet and skip some of the legacy hardware companies that commonly populate tech ETFs. If this is your mindset, consider the PNQI fund that contains fast-growing giants like Amazon.com (AMZN) and Facebook as well as smaller picks like security play Carbonite (CARB) or e-commerce specialist Petmed Express (PETS). There is a wide variety in the nearly 100 holdings of this fund, but one thing all these picks share is a focus on internet growth potential.
ROBO Global Robotics and Automation ETF (ROBO)
There are dynamic trends in technology, where concepts and business models are still emerging but hold tremendous future potential. In this case, the ROBO fund may be worth a look to invest in developing automation in the workplace. Consider that in a 2013 Oxford report investigating the impact of automation on more than 700 professions, experts estimated nearly half of total U.S. employment is at risk of potential disruption as robots and artificial intelligence become more cost effective. That would still require significant investment in these technologies, and ROBO components like drone innovator AeroVironment (AVAV) and AI chipmaker Nvidia Corp. (NVDA) are sure to benefit in the years ahead.
ETFMG Prime Cyber Security ETF (HACK)
Another big trend in technology that will surely see continued growth in the future is cybersecurity. For better or worse, hacking concerns persist – from fears of election interference by Russian actors to identity thieves trying to steal your personal information. Holdings of this cyber security ETF include major enterprise tech plays like Cisco Systems (CSCO) as well as lesser-known and niche players like Commvault Systems (CVLT). HACK is the leading cybersecurity-focused ETF, with more than $1.4 billion in assets, proving that many investors see the appeal of a diversified play on this sub-sector of information technology.
iShares PHLX Semiconductor ETF (SOXX)
The flip-side of trying to predict the future growth trends of tech is to rely on the chipmakers that create the hardware that goes inside the devices, such as smartphones, laptops and flat-screen TVs. It's not a very high margin business and certainly isn't glamorous, but is a crucial part of the technology ecosystem. There are only 31 components in this ETF, but the focused list includes Intel Corp. (INTC) and Texas Instruments (TXN) to collect companies responsible for a significant portion of global semiconductor sales.
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