How to Invest in Tech ETFs

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Image source: Getty Images.

There have been some massive winners in the tech sector in recent years, but there has been a lot of turbulence as well — especially during the 2022 market downturn that left many investors afraid to pick individual tech stocks.

That’s where ETF investing comes in. There are some excellent ETFs that focus either on the overall tech sector or a specific part of it. These can give you exposure to the high-potential tech space in your portfolio but without the risks associated with investing in any individual companies. In this article, we’ll discuss seven top tech ETFs that are worth a look for investors who may want to add diversified tech exposure to their portfolios.

Seven top tech ETFs to consider

Market cap as of January 6, 2023. Data source: YCharts.
ETF Name
(Ticker Symbol)
Market Capitalization Description
Vanguard Information Technology ETF (NYSEMKT:VGT) $49 billion Broad technology sector
Technology Select Sector SPDR ETF (NYSEMKT:XLK) $42 billion Broad technology sector
VanEck Semiconductor ETF (NYSEMKT:SMH) $7 billion Semiconductors
iShares Cybersecurity and Tech ETF (NYSEMKT:IHAK) $520 million Cybersecurity stocks

Invesco QQQ ETF (NASDAQMKT:QQQ) $164 billion Nasdaq-listed stocks
Invesco S&P 500 Equal Weight Technology ETF (NYSEMKT:RYT) $2 billion Broad technology sector but not weighted
ARK Innovation ETF (NASDAQMKT:ARKK) $7 billion

Actively managed with focus on high-growth tech

Let’s take a closer look at each of these exchange-traded funds:

1. Vanguard Information Technology ETF

Vanguard is well-known for its low-cost index funds, and the Vanguard Information Technology ETF certainly falls into this category with a rock-bottom 0.10% expense ratio. This means that, for every $10,000 you invest, your annual fund expenses are just $10.

The ETF tracks a broad index made up of U.S. tech companies of all sizes, and, as a market cap-weighted ETF, top holdings include companies such as Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), and Nvidia (NASDAQ:NVDA). In short, the ETF is an excellent choice for investors who want a set-it-and-forget-it way to invest in the overall information technology sector.

2. Technology Select Sector SPDR ETF

The Technology Select Sector SPDR ETF is very close to the Vanguard fund. It is of similar asset size, has the same 0.10% expense ratio, and tracks a very similar index. In fact, the top holdings of the fund are identical to those of the Vanguard example.

Vanguard and Technology Select are two extremely similar ETFs for getting broad exposure to the information technology sector, and it’s tough to declare one as being better than the other. Investors who want to just invest in “tech stocks” won’t go wrong with it either.

3. VanEck Semiconductor ETF

Now we’re getting into more specific ways to invest in tech stocks through ETFs. The VanEck Semiconductor ETF tracks an index of semiconductor (chipmaker) manufacturers. Nvidia is a top holding, as are Taiwan Semiconductor (NYSE:TSM), Broadcom (NASDAQ: BRCM), Texas Instruments (NYSE:TXN), and Applied Materials (NASDAQ:AMAT), just to name a few.

The ETF has a slightly higher 0.35% expense ratio, but it’s important to note that investors should expect to pay a bit more for specialized ETFs like this.

4. iShares Cybersecurity and Tech ETF

It seems like there is another high-profile data breach every other week, and the sophistication of threats (especially in the cloud) is increasing. Investing in cybersecurity stocks can be an interesting opportunity for patient, long-term investors, and the iShares Cybersecurity and Tech ETF lets you concentrate your money in this subsector of technology.

The ETF has a 0.47% expense ratio, which is on par with others of similar size and specialization. It aims to track an index of cybersecurity stocks, with top holdings that include Booz Allen Hamilton (NYSE:BAH), Juniper Networks (NASDAQ:JNPR), Palo Alto Networks (NASDAQ:PANW), and many other names you might recognize.

5. Invesco QQQ ETF

No discussion of tech ETFs would be complete without mentioning the Invesco QQQ ETF, which is by far the largest Nasdaq-tracking exchange-traded fund.

The QQQ ETF has a relatively low 0.20% expense ratio and tracks the NASDAQ 100 index, which is essentially an index of the largest stocks listed on the Nasdaq exchange. The QQQ ETF isn’t a pure tech ETF; it is just very tech-heavy. About 48% of the fund’s assets are invested in the tech sector, with another 15% in communications stocks. Top positions include Apple, Microsoft, Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL)(NASDAQ:GOOG), and Tesla (NASDAQ:TSLA).

The Invesco QQQ ETF could be appropriate for investors who want passive exposure to a tech-heavy portfolio but who don’t want to be exclusively dependent on the technology sector.

6. Invesco S&P 500 Equal Weight Technology ETF

One major risk factor with all five ETFs discussed so far is that they’re rather top-heavy. Because they are market cap-weighted, and there are several blue chip tech stocks with trillion-dollar market caps, they are highly concentrated in just a few stocks. As an example, Apple makes up more than 20% of both the Vanguard and SPDR ETFs discussed earlier.

The Invesco S&P 500 Equal Weight Technology ETF aims to create a truly diversified basket of tech stocks by allocating an equal amount of assets to every company in the index it tracks. In other words, a relatively small company in the index, such as Hewlett-Packard Enterprises (NYSE:HPE), gets the same exposure as a massive company like Nvidia. The 0.40% expense ratio is quite reasonable and a potentially smart choice for investors who don’t want their investment returns too dependent on any single company’s success.

7. ARK Innovation ETF

The first six ETFs all have one big characteristic in common — they are all passive funds. In other words, they all are designed to simply track an index of stocks and match its performance over time.

By contrast, the ARK Innovation ETF is actively managed by well-known investor Cathie Wood and her team and is designed to capitalize on innovative and rapidly growing tech companies. The fund’s five largest holdings currently are Zoom (NASDAQ:ZM), Tesla, Roku (NASDAQ:ROKU), Exact Sciences (NASDAQ:EXAS), and Block (NYSE:SQ).

The idea is that by being able to invest the fund’s assets in whatever opportunities seem the most attractive at any given time, the ARK Innovation ETF aims to beat the performance of the overall tech sector. Of course, the fund didn’t exactly have a great 2022. But if you’re looking for the potential of market-beating performance, this ETF is worth a closer look.

The bottom line on investing in tech ETFs

As you can see, not all tech ETFs are identical. Some track a broad index of tech companies, others track more specialized baskets of stocks, and still others take an actively managed approach. The best course of action if you’re thinking about adding some tech exposure to your portfolio is to compare each to see which is best suited to your goals and risk tolerance.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Matthew Frankel, CFP® has positions in Amazon.com and Block and has the following options: short January 2024 $200 calls on Block. The Motley Fool has positions in and recommends Alphabet, Amazon.com, Apple, Applied Materials, Block, Microsoft, Nvidia, Palo Alto Networks, Roku, Taiwan Semiconductor Manufacturing, Tesla, and Zoom Video Communications. The Motley Fool recommends Booz Allen Hamilton and Exact Sciences and recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.



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