The 10 Technology ETFs You Should Consider

The obvious one is high-growth and earnings potential. After all, firms at the cutting edge of major trends like mobile advertising or SaaS/cloud computing have a greater potential to knock it out of the park in terms of profits than, say, a steel manufacturer. On aggregate, Wall Street analysts are predicting that tech stocks will see 10% earnings growth this year.

The not-so-obvious reason is income potential: as some of the largest technology stocks have matured, they’ve finally started to hand their massive retained earnings cash piles back to investors as dividends. Surprisingly, the sector leads in terms of dividend growth.

No matter the reason ‒ growth or income ‒ tech stocks deserve a place in your portfolio. And exchange-traded funds (ETFs) remain one of the best ways to add that exposure. With nearly 56 ETFs tagged as “technology ETFs” here at ETFdb.com, there are plenty of choices.

Here are ten of the best:

The largest tech ETF is still one of the best. The Technology Select Sector SPDR Fund (XLK A) offers impressive trading volumes, assets under management and low costs.

XLK tracks the Technology Select Sector Index, which is basically all of the tech firms in the S&P 500. These include industry stalwarts, like Apple (AAPL) and Cisco Systems (CSCO). All in all, XLK owns 75 of the largest tech stocks in the United States, and while that may seem like only a handful of firms, the ETF actually has plenty of diversification among various tech subsectors. Everything is well represented and pretty even.

As for expenses, XLK shines as one of the cheapest options, at just 0.14% ‒ or $14 per $10,000 invested.

Back in the dotcom bubble days, the internet was the tech revolution; anything with a “.com” was bid up in an effort to profit from the mania. Well we all know how that turned out for many stocks. But today, the vast bulk of internet stocks are stable, profit-generating giants that have become entrenched in our way of life. These days it would be hard to live with Alphabet (GOOG) or Amazon (AMZN).

Betting on these internet stocks can be done through the First Trust Dow Jones Internet ETF (FDN B-). FDN tracks the Dow Jones Internet Composite Index. The index looks at firms that must generate at least 50% of their annual sales/revenues from the internet, including lifestyle portals, online retailers, travel websites and social media sites, in addition to other internet-related stocks. Ultimately, FDN holds 42 of the nation’s most mature and largest Internet-related tech stocks.

Expenses for FDN run at 0.54%.

As mentioned earlier, the tech sector is as much about dividends as it is about growth. And of the 56 tech ETFs available, only the First Trust NASDAQ Technology Dividend ETF (TDIV A) focuses on that income potential.

TDIV hones in on those tech stocks that pay steady dividends. Pure and simple. The ETF creates its portfolio by applying screens for yield and dividend payout consistency to the various large-cap tech stocks trading on the NASDAQ and NYSE. This produces a set of holdings that feature tech’s biggest stalwarts, not just one “all revenue, no profit” firm, among the ETF’s 94 holdings.

It also helps to produce a big yield: TDIV currently has a yield of 3.04%, but that yield has grown as more tech stocks in the index have continued to grow their dividend payments.

The net expense ratio for TDIV is 0.50%.

One of the biggest problems with tech investing is that the “next big thing” often turns out to not be “the next big thing.” Buzzworthy innovations – such as 3D printing, big data analytics, cloud computing and biotechnology – may not turn out to be as big as predicted. Or, in turn, they might be bigger.

The iShares Exponential Technologies ETF (XT B) hopes to make selecting “buzzworthy” tech stocks easy ‒ by owning them all. The ETF bets on disruptive tech stocks ‒ basically all the stuff that has the potential to transform society along with various industries. Robotics? It’s in XT. Genome sequencing? That’s in there too.

XT tracks the Morningstar Exponential Technologies Index, which looks at global stocks in the so-called exponential tech industries. And while it is technically a tech ETF, there’s plenty of healthcare, industrial and financial sector exposure. It’s just that these firms have plenty of innovation behind them. At the end of the day, XT makes for a great long-term play on technology’s biggest potential themes.

Expenses for the ETF run at 0.47%.

Small caps have often been a powerful place to find plenty of growth over the long haul. So combining them with a high-growth sector like tech results in plenty of capital appreciation potential ‒ albeit with more volatility. The PowerShares S&P SmallCap Information Technology Portfolio (PSCT C+) allows investors to bet on a wide swath of small-cap tech firms, and it’s the only ETF to hone in on the small-cap segment of the sector.

Like the previously mentioned XLK, PSTC bets on tech stocks in the S&P. However, this time it’s all the tech stocks in the S&P 600. But that doesn’t mean it’s full of unknown names. Familiar stocks like Cirrus Logic (CRUS) and Monster Worldwide Inc (MWW) are included. All in all, the ETF holds 98 small-cap tech stocks that still pack a punch.

Expenses for PSTC run at just 0.29%

While the U.S. is a dominant force in technology, innovation isn’t defined by its borders. There are plenty of tech powerhouses located all over the globe. Which is why the iShares S&P Global Technology Sector ETF (IXN A-) could be a great portfolio position.

IXN tracks the S&P Global 1200 Information Technology Sector Index – the measure of large- and mid-cap tech stocks from across the globe in both developed and emerging markets. The U.S. still dominates IXN’s holdings, but the remaining 25% or so of its international stocks are some of the largest international tech players. We’re talking about the Samsungs and SAPs of the world. These firms are equally as important to the tech narrative as say Apple (https://etfdb.com/stock/AAPL/) is.

In the end, forgetting about them could cost a portfolio big-time gains.

Expenses run 0.47%.

We can have all the technology we want, but if it’s not protected, then it’s worthless. And we are just now realizing how much of an issue cyber threats are becoming – as each day, it seems there’s another high-profile hacking or data breach. With that in mind, the technology firms fighting these threats could be huge winners over the long haul.

The PureFunds ISE Cyber Security ETF (HACK B+) is the biggest ETF tracking the sector. The fund’s underlying index – the ISE Cyber Security Index – reads like a ‘who’s who’ of hardware, software and data-recovery firms that specialize in reducing and preventing the growing number of cyber threats. This includes larger, more established firms, as well as smaller upstarts with big potential. HACK’s 35 holdings skew towards these smaller firms. Ultimately, they have the greatest potential for the continued spending that will be coming cyber security’s way over the long haul, as more of our lives move online and into the cloud.

Expenses for the HACK ETF run at just 0.75%.

The tech sector is made up of two distinct groups. The old and potentially slower-growing tech firms that have matured into their business lines and the faster startups that are disrupting whatever industry they’re in. The problem is that most market-cap weighted indexes overweight the tech “dinosaurs,” while only offering a few token percentage points to the newbies. This problem creates a drag on performance.

Equal weighting is a possible solution. The big guys have the same pull on the index as the small fries.

The Guggenheim S&P 500 Equal Weight Technology ETF (RYT A-) takes all the tech stocks in the benchmark S&P 500 and equal weights them. Apple has just as much exposure as CSRA Inc. No one stock can drive the indexes returns. This also allows the smaller firms to shine. Given the high growth potential of tech, using RYT as a position could do wonders for a portfolio’s returns.

RYT expenses run a cheap 0.40%.

It doesn’t matter if its cloud computing, wearable technology, the internet of things (IoT) or e-commerce, it all runs on one simple thing – semiconductors. Computers are the backbone of modern society, and without them, technology just doesn’t happen. So betting on the chip providers could be a great way to play all the facets of tech.

The iShares PHLX Semiconductor ETF (SOXX B) is the largest semiconductor-focused ETF on the market and tracks the benchmark PHLX SOX Semiconductor Sector Index. The index is made up of the largest and most important semiconductor specialists trading in the U.S. Investors get access to both the ‘boring, bread-n-butter’ analog chips, and the high-end/cutting-edge chip producers. SOXX also includes a 12% weighting to those firms that make computer chip manufacturing equipment.

In the end, SOXX makes an ideal way to get in on the ground floor of technology. It’s a backdoor play on the growing subsectors of the industry. Expenses for SOXX run at 0.48%.

What happens when you combine one of the highest growth sectors with one of the fastest growing nations? Plenty of long-term returns.

The Guggenheim China Technology ETF (CQQQ B-) is unique in that it combines Chinese and tech stocks. At first blush, that may seem like an odd combo, but the reality is, China is a tech powerhouse. The nation is one of the largest mobile phone and internet users in the world, and has an entire ecosystem devoted to online gaming, shopping and entertainment. Meanwhile, Lenovo Group is one of the largest computer manufacturers in the world, and the nation is a dominant solar panel producer. In the end, China is as much about technology as the U.S.

As a result, CQQQ could be a great long-term play as China emerges and becomes a ‘super power’ – one that runs on a hefty dose of tech.

CQQQ costs just 0.70% to own.

Given its combination of growth and new income, some holdings in the tech sector should be in everyone’s portfolio. The ten ETFs listed above are some of the choices available to investors to gain exposure to the technology sector – and they represent a wide variety of funds offered.

Disclosure: Author is Long XT