It is getting harder for financial advisors to pick a lovely basket of tech stocks to sell to their clients. Companies like Apple and Microsoft are the two largest companies by market cap, and they are the two most prominent companies in most tech ETFs.
Investors have been increasingly seeking out passive managed ETFs that provide low costs, flexibility, and transparency and offer options for long-term investors. An excellent broad-based ETF can give you exposure to all sectors, but looking into some sector ETFs like technology can offer more options to add to a portfolio.
Owning a simple index fund ETF that tracks the Standard and Poor's 500 index will give you a good concentration of tech stocks that will add to their impressive 26.9% return in 2021. Companies like Apple, up 33.8%, Alphabet up 65.3%, Nvidia up 125%, and Advanced Micro Devices up 57%, have soared in 2021.
Vanguard's S&P 500 Index ETF (VOO) is one great example. Even with a simple, unpretentious ETF like VOO, you get a market-caped weighted tech sector that sits at the top 10 of its holdings. Alphabet, Amazon, Tesla, Apple, Nvidia, and Microsoft make up the Top 6 of its holdings. It also boasts an allocation of information technology, making up 29% of the ETF. You cannot go wrong with this ETF.
If you are looking for something that can get a bit more exposure to the tech sector of the market, then there are 3 Top Tech ETFs you should look to add to your portfolio.
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VGT: Vanguard Information Technology Index Fund ETF
Designed to give a more broad-based exposure to technology, you cannot go wrong with looking any further than Vanguard's Information Technology ETF (VGT). VGT has amassed assets over $51 billion, making it the largest ETF striving to match the technology sector's performance. It has an expense ratio of 0.10% and a ten-year average of 23.66%. It bested the S&P 500 with a one-year return of 30.28%.
What makes VGT a great ETF is the low costs that are associated with it and the impressive 10-year average. VGT will be a great addition to a portfolio to add more concentration to tech stocks.
It allows you to have a Technology sector ETF with a low-cost option. One caveat is that Apple and Microsoft heavily weighted 39% of the total portfolio. The over-concentration of Apple and Microsoft may worry some investors that may look for some alternatives, but admittingly you cannot go wrong with investing in VGT.
QQQ: Investco's QQQ Trust ETF
Investco's QQQ Trust ETF (QQQ) happens to be one of the most significant exchange-traded funds. It tracks the Nasdaq-100 Index (NDX), and it has been considered the gold standard in NDX, outperforming the S&P 500 index. According to ETF.com, it is one of the most traded ETFs on the market. QQQ is a large liquid ETF that is composed of great growth companies like Apple (AAPL), Amazon (AMZN), and Microsoft (MSFT). QQQ is one tech ETF that cannot be overlooked.
Unlike VGT, QQQ is more evenly weighted. VGT having close to 40% weighted in Microsoft and Apple makes it less diverse. QQQ brings that allocation down closer to 20%, with a more market cap weight for the Nasdaq-100.
QQQ allows you to have a more diverse tech portfolio that features Alphabet, Amazon, and Tesla aside from Apple and Microsoft.
As of September of 2021, Lipper Leaders ranked QQQ the number one growth ETF in total return over the past 15 years. With an expense ratio of 0.20% and a 10-year return of 22.04% on average, you cannot go wrong with picking QQQ as an ETF to add to your portfolio.
SMH: VanEck Vectors Semiconductor ETF
As demand for semiconductors rises, the chip industry will continue to see a rise in returns and demand. Just the other day, Taiwan Semiconductor Manufacturing announced an incredible 16.4% net profit in the last quarter of 2021. They then announced that they would be investing an additional $40- $44 Billion into creating more semiconductors.
As the semiconductor industry grows, having a piece of the industry may warrant consideration. Companies like TSM, Nvidia, Intel, and Qualcomm are the world leaders in creating microchips. As technology continues to grow into a more significant sector, semiconductors will also be there to fill the needs of the new technology.
VanEck Vectors Semiconductor ETF (SMH) is one of the top semiconductor ETFs on the U.S. market. It tracks the MVIS®US Listed Semiconductor 25 Index and holds a total of 25 different stocks that make up the ETF with an expense ratio of 0.35%. It is more weighted by market cap with a large concentration in TSM of 9.71% of the ETF.
Out of the top semiconductor ETFs, SMH has the best returns in 3- and 15 year periods. These periods also have had a better average than VOO and QQQ, with an average return of 18.1% over 15 years.
Each technology ETF has something different to offer. As investors build their portfolios, they will need to consider what type of concentration and risk level they would like to evaluate other ETFs.
A simple S&P 500 ETF like VOO can be all they need. Still, with an additional concentration in the technology sector like VGT, QQQ, or SMH, an investor can create some opportunities for growth within a portfolio.
I’m Steve. I’m an English Teacher, traveler, and an avid outdoorsman. If you’d like to comment, ask a question, or simply say hi, leave me a message here, on Twitter (@thefrugalexpat1). Many of my posts have been written to help those in their journey to financial independence. I am on my journey, and as I learn more I hope to share more. And as always, thanks for reading The Frugal Expat.