(Image credit: Getty Images)
By Jeff Reeves
last updated
Technology stocks and tech ETFs have seen renewed interest this year. 2022 marked a rough stretch for the stock market as investors took a "risk-off" approach to their portfolios. But things seem to have settled down in 2023, with many strategies that worked in previous years once again returning to favor.
Consider that trillion-dollar icon Apple (AAPL) is up nearly 40% since the start of the year. Chipmaker Nvidia (NVDA) has been another impressive gainer, almost tripling in value for the year-to-date on optimism around its artificial intelligence (AI) initiatives.
This recent outperformance is not a guarantee of future returns, of course. And many on Wall Street believe tech's run higher is on the cusp of running out of steam.
"Technology has been the main engine behind this year's rally, and risk of the sector overheating continues to climb," say Jeffrey Buchbinder, chief equity strategist, and Adam Turnquist, chief technical strategist for LPL Financial. However, the two also believe that any potential pullbacks in tech stocks create an opportunity "for investors seeking a better entry point into the sector."
Investors who have been waiting for the return of Big Tech can certainly home in on individual stocks. But a lower-risk approach is with technology exchange-traded funds, whose risk is spread across dozens if not hundreds of stocks.
With that in mind, here are nine of the best tech ETFs to buy now. The names featured here are some of the best ETFs to buy for those looking to participate in the growth of the entire sector, or even smaller industry trends like cybersecurity and AI, while minimizing the risk of single-stock implosions.
Disclaimer
Data is as of October 18. Dividend yields represent the trailing 12-month yield, which is a standard measure for equity funds.
Topics
Cisco SystemsNasdaq-100Nvidia
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(Image credit: Courtesy of Invesco)
Invesco QQQ Trust
- Assets under management: $203.0 billion
- Dividend yield: 0.6%
- Expenses: 0.20%, or $20 annually for every $10,000 invested
Though not technically a dedicated technology fund, the sheer size of the Invesco QQQ Trust (QQQ, $363.37) makes it worth a look. This massive index fund is benchmarked to the Nasdaq-100, a group of the largest companies that are listed on this innovative exchange. And, unsurprisingly, technology accounts for nearly 60% of QQQ via several trillion-dollar Nasdaq-listed companies like Microsoft (MSFT), Apple (AAPL) and Amazon.com (AMZN).
In fact, these three blue chip stocks alone account for more than 25% of the entire portfolio. Furthermore, the next largest sector is communication services at 19% or so. This includes digital companies like Google parent Alphabet (GOOGL) that technically falls into that bucket rather than traditional tech.
You'll still get a smattering of stocks in various other sectors, but if you want to lean into technology via a diversified ETF instead of a laser-focused sector fund, then the QQQ is worth a look. And the Invesco QQQ Trust is one of the most popular and liquid tech ETFs, so you'll be in very good company.
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(Image credit: Courtesy of Vanguard)
Vanguard Information Technology ETF
- Assets under management: $50.6 billion
- Dividend yield: 0.8%
- Expenses: 0.10%
The Vanguard Information Technology ETF (VGT, $420.23) is a heavily diversified, but still dedicated tech-sector fund. VGT has many of the same benefits as QQQ, including an outsized focus on Big Tech icons like Apple and Microsoft. With $51 billion in assets, it's also incredibly liquid and established. And at an annual expense ratio of just 0.10%, it's one of the best tech ETFs for affordability.
The big difference here is that this Vanguard ETF is wholly dedicated to tech stocks with 100% of the portfolio in that sector. Interestingly enough, VGT is even more top-heavy on the trillion-dollar Dow stocks, with some 40% of assets dedicated to Apple and Microsoft. This is because the Vanguard Information Technology ETF weights its individual stocks by their respective sizes.
Keep this in mind if you're looking to play the tech sector, since the performance (or underperformance) of one of these top stocks could have outsized influence on the movement of this ETF.
That said, there are still roughly 320 other positions in this tech fund. VGT is by far the largest of the technology ETFs on Wall Street, more than three times larger than its closest peer. So if you want a simple and easy way to play the broad trends in technology then VGT might be your best bet.
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First Trust NASDAQ Cybersecurity ETF
- Assets under management: $5.1 billion
- Dividend yield: 0.4%
- Expenses: 0.60%
Between the long-term shift toward a digital economy and the increased reliance on remote work and e-commerce in the wake of the COVID-19 pandemic, the stakes continue to get higher for cybersecurity with each passing year. In fact, the total cost of cybercrime in 2023 is forecasted to reach $8 trillion worldwide – yes, trillion with a T – and reach $10.5 trillion by 2025, according to Cybersecurity Ventures.
That means one area of the tech sector that's all but a sure thing these days are cybersecurity stocks. There is admittedly shifting market share among the players as they jockey for bigger pieces of the pie, but it's undeniable that the pie itself is only getting larger.
The First Trust NASDAQ Cybersecurity ETF (CIBR, $46.33) is one of the best tech ETFs to play this trend and gain exposure to software and IT companies that are beneficiaries of long-term cybersecurity spending growth.
There are currently only about 30 total holdings in CIBR, but they are a focused list of players in the space. These include firewall software provider Palo Alto Networks (PANW) and enterprise tech mainstay Cisco Systems (CSCO), among others.
For investors seeking out the top tech funds, CIBR is a diversified way to play heightened awareness and increased spending on cybersecurity in the years ahead. With the Russian invasion of Ukraine prompting increased cyber risk for businesses and government institutions, it seems unlikely that these threats are going away anytime soon.
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MicroSectors FANG+ ETN
- Assets under management: $129.4 million
- Dividend yield: 0.00%
- Expenses: 0.58%
Moving even further away from diversification, the MicroSectors FANG+ ETN (FNGS, $32.37) is a unique offering that allows investors to play a short list of leading technology companies.
Several years back, during the high-growth and "risk on" days where tech was king, pundits commonly used the FANG acronym as a stand-in for the high flying companies of the day – Facebook, Amazon, Netflix (NFLX) and Google.
The marketplace has evolved, including Facebook changing its name to Meta Platforms (META) and Google changing its name to Alphabet in the intervening years. Still, this acronym is still shorthand for the biggest and most dynamic names in tech, and this fund is a way to stay focused on that elite list of leaders.
FNGS offers a focused list of just 10 total Big Tech holdings, including semiconductor stocks Broadcom (AVGO) and Nvidia (NVDA). It rebalances quarterly to ensure that stocks stay at roughly a 10% allocation each.
As you can see from the prior funds, it's not uncommon for even the best tech ETFs to be reliant on a short list of companies for the majority of their holdings. So rather than fill the portfolio up with hundreds of stocks at tiny allocations, FNGS dives into the leaders of Silicon Valley and ignores the rest.
That can be risky, sure. But considering it is up more than 70% for the year-to-date, this is a strategy that can also pay off when that short list of tech companies does well.
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iShares Semiconductor ETF
- Assets under management: $8.4 billion
- Dividend yield: 0.9%
- Expenses: 0.35%
In contrast to cybersecurity, which has seen nothing but signs of expansion, the semiconductor manufacturing industry has been in a bit of a slump over the last few years. It began during the supply-chain disruptions brought on by COVID-19, then was exacerbated by trade wars between the U.S. and China and more recent fears of a global economic slowdown that could weigh on overall chip demand.
But semiconductor stocks are back in favor in 2023, with the iShares Semiconductor ETF (SOXX, $471.26) up nearly 40% for the year-to-date. This is in part due to a rosier economic outlook for Asia as China finally ends its severe COVID-related lockdowns, as well as the 2022 CHIPS and Science Act that aims to inject $280 billion domestically into the industry.
The iShares Semiconductor ETF is the largest fund dedicated to the chip-making industry, and is the most focused way to play U.S.-listed semiconductor stocks capitalizing from recent developments. Top holdings in SOXX include Nvidia, Broadcom and Texas Instruments (TXN), among others.
There's always a risk that supply chains will melt down again, or that consumer and business spending will dry up. But based on recent momentum – as well as growing interest in AI efforts from many of these chipmakers – SOXX is looking good for investors seeking out the best tech ETFs.
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Ark Fintech Innovation ETF
- Assets under management: $796.6 million
- Dividend yield: 0.0%
- Expenses: 0.75%
The Ark Fintech Innovation ETF (ARKF, $18.77) is a tech ETF from asset manager Ark Invest that gives investors exposure to firms in mobile payments, digital wallets and blockchain technology. Particularly as Bitcoin gets some of its mojo back, jumping about 70% since the start of the year, now may be a great time to consider this technology fund with a dedicated focus on fintech stocks.
This is a global fund, holding about 30 total companies that provide products or services that aim to reshape the way we pay for things and manage our money in a digital age. This includes digital payments companies like mobile payments processor Block (SQ), as well as Canadian e-commerce service provider Shopify (SHOP), mobile sports betting giant DraftKings (DKNG) and mobile-friendly investment platform Robinhood Markets (HOOD) to name a few.
With the internet now decades old, it's not particularly innovative to do business on the web. And particularly after the pandemic, it's all but expected that most major merchants offer some kind of online transaction platform. But the companies that make up the Ark Fintech Innovation ETF are thinking about the next generation of digital finance and how the global economy may evolve even more over the years to come. This is why ARKF is on this list of the best tech ETFs to watch going forward.
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ARK Next Generation Internet ETF
- Assets under management: $1.2 billion
- Dividend yield: 0.0%
- Expenses: 0.88%
One of the best ETFs of this year is another fund from Ark Invest: the ARK Next Generation Internet ETF (ARKW, $52.94). ARKW is a play on software-related technology opportunities rather than hardware ones. As the name implies, this is a tech-focused fund that looks at the future of the digital economy in an internet age via holdings like Block, crypto asset exchange Coinbase Global (COIN), streaming media icon Roku (ROKU) and videoconferencing giant Zoom Video Communications (ZOOM).
There's a lot of risk and potential disruption in the works here, as well as a chance that some of these so-called transformative technologies don't live up to the hype. But with roughly 40% gains so far in 2023, there are clearly plenty of people on Wall Street who believe in the potential of these companies right now. And ARKW is one of the best tech ETFs to gain exposure to these firms.
One note, however: This ARK fund is actively managed, meaning a higher expense structure than some of the less tactical technology ETFs out here. Given its recent outperformance, that may not bother many people. But in an environment where ARKW doesn't do much better than the broader market – or worse, underperforms – it could be tough to stomach the fees that are between five times and 10 times most other funds on this list.
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Global X Robotics & Artificial Intelligence ETF
- Assets under management: $2.0 billion
- Dividend yield: 0.2%
- Expenses: 0.69%
Artificial intelligence and automation are emerging as another shift in the global economy. Investors seeking out the best ETFs to play this new trend will certainly want to focus on the Global X Robotics & Artificial Intelligence ETF (BOTZ, $23.71) – the largest and most established fund in this space.
To be clear, this is not a hyper-aggressive play on development-stage companies that have some grandiose plans to build supercomputers that think for us. Rather, this technology ETF has a portfolio populated with the best AI stocks that are making real profits from next generation technology that is being sold today.
Representative examples include robotic surgery leader Intuitive Surgical (ISRG), sensor and barcoding leader Keyence (KYCCF) and global electronics conglomerate ABB (ABBNY), to name a few. Together, these three companies are valued at about $250 billion in market value – so they hardly are risky startups that could flame out in the next year or two.
With gains of about 30% over the past 12 months, this AI ETF has nearly doubled the returns of the broader S&P 500 Index in the same period. And with the increased focus on automation and AI to drive both efficiency as well as high-tech progress in all sectors of the economy, BOTZ could be in for even better days in the future.
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(Image credit: Courtesy of KraneShares)
KraneShares CSI China Internet ETF
- Assets under management: $5.4 billion
- Dividend yield: 0.0%
- Expenses: 0.69%
The last on our list of the best tech ETFs is perhaps the most speculative of all. The KraneShares CSI China Internet ETF (KWEB, $26.55) is a global option that is dedicated to the high-risk but high-growth internet sector in China.
The good news is that even though many of the companies in the portfolio are China-listed rather than U.S.-listed, this fund is just as easy to buy in your brokerage account as your favorite blue chip stock. It's also well-established with more than $5 billion in assets, so this is not a fly-by-night operation.
Still, there's risk here as the top holdings are companies like Tencent Holdings (TCHEY) and Alibaba Group Holding (BABA) that are closely tied to spending trends in China. Lately, these Chinese stocks have been rising on hopes of a "great post-COVID reopening" in the mainland that leads to sustained and significant spending by both businesses and consumers. However, there's real risk if this doesn't pan out as planned.
That said, it's undeniable that the tech sector in this emerging market has much more room to grow than one in more established Western markets like the U.S. For instance, data from Statista shows that roughly 1.0 billion people in China accessed the internet in 2021, but this represented just 72% of the population. By contrast, the U.S. had a 97% internet penetration rate in 2021. That's still a lot of growth to be had in China, and could translate into significant gains for the 30 or so stocks that make up this top technology ETF.
Learn more about KWEB from the KraneShares provider site.
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Jeff Reeves
Contributing Writer, Kiplinger.com
Jeff Reeves writes about equity markets and exchange-traded funds for Kiplinger. A veteran journalist with extensive capital markets experience, Jeff has written about Wall Street and investing since 2008. His work has appeared in numerous respected finance outlets, including CNBC, the Fox Business Network, theWall Street Journaldigital network,USA Todayand CNN Money.
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