The technology sector is often associated with delivering lucrative returns, while at the same time having a rather risky reputation. Some even consider the industry as one of the last “growth” frontiers left in the market, as innovation continues to be the driving force behind rapid product development and a constant effort to boost efficiency. As such, investors have flocked to technology equities, hoping to capture the sector’s promising long-term potential [see also How To But The Right ETF Every Time].
For those looking to use the ETF wrapper to tap into this industry, there are several hyper-targeted and broad-based options. However, determining which approach to take can be difficult; some choose to cast a wider net over the space, while others may wish to establish a tactical tilt towards specific sub-sectors of the tech industry.
There are over 40 different technology-focused ETFs investors can choose from, with several products offering exposure tilted towards a particular sub-sector, such as internet, nanotechnology or semiconductors, and others casting a wider net over the entire space.
The chart below highlights six technology ETFs, comparing their performances across various time frames, including year-to-date returns [see High Tech ETFdb Portfolio]:
- SPDR Technology Select Sector Fund (XLK, A)
- Dow Jones Internet Index Fund (FDN, B+)
- S&P North American Technology-Multimedia Networking Index Fund (IGN, B)
- S&P GSTI Software Index Fund (IGV, B+)
- Lux Nanotech Portfolio (PXN, C+)
- PHLX SOX Semiconductor Sector Index Fund (SOXX, A-)
Across the board, 2011 was a sour year for the technology industry, with several sub-sectors posting double digit losses. In 2012, most corners of the tech world managed to bounce back, though nanotechnology (PXN) struggled to stay afloat. Year-to-date, however, technology equities have fared quite well, with the exception of networking stocks, which are down slightly for the year. It should be noted that the broad-based XLK has delivered positive returns over the last three years, though returns relative to other sub-sectors are slightly lower.
While there is no universally right choice from the above ETFs, investors should also consider other obvious factors besides performance, including expenses, risk and portfolio composition.
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Disclosure: No positions at time of writing.