The Invesco QQQ Trust (QQQ 1.54%) is one of the most popular exchange-traded funds (ETFs) on the market with just under $200 billion in assets under management. As an ETF that tracks the performance of the Nasdaq-100 index, it has delivered some of the best long-term returns since it came into existence in 1999. For reference, the Nasdaq-100's components are the 100 largest non-financial companies in the tech-heavy Nasdaq Composite, so it will come as little surprise that more than half of its weight is in tech.
While the Invesco QQQ is a great ETF that could play an important role in any portfolio, there is a similar ETF that I would consider first -- the Fidelity MSCI Information Technology ETF (FTEC 1.63%). There are a few things about this Fidelity fund that make it stand out above the rest.
Some key advantages
The Fidelity MSCI Information Technology ETF does not have as long of a track record as the QQQ or some of the other leading technology ETFs in its class from Vanguard, State Street, and iShares (which is owned by BlackRock). That's probably why it has fewer assets under management (about $7 billion) and is less well-known than those competitors. But it really stacks up well against the QQQ and the others.
If you look at the chart below, the Fidelity fund had a 10-year annualized return of about 17.5% as of Sept. 20. That's roughly on par with some of the other funds listed in the chart, but it specifically beats the Invesco QQQ's return of 16.0% over that same period. It also outperforms the QQQ looking back at their one-year, three-year, and five-year returns.
Data by YCharts.
And it has other advantages as well. First, the Fidelity ETF is more diversified than the QQQ and most of its peers: It has 310 holdings, compared to 101 for the QQQ.
Also, while the QQQ is considered a technology ETF, as noted above, it's not entirely made up of technology stocks. About 62% of its assets are in the technology and telecommunications sector, while 19% are in consumer discretionary, 7% in healthcare, 5% in industrials, and 4% in consumer staples.
The Fidelity MSCI Information Technology ETF is made up entirely of technology stocks, covering a much broader swath of the sector. About 26% of its portfolio is in systems software, while 25% is in technology hardware and storage, 18% in semiconductors, 14% in application software, 4% in semiconductor materials and equipment, 3.7% in IT consulting, 3.5% in communications equipment, and 2% in internet services and infrastructure.
It also has diversification within the sector and largely tracks the MSCI USA IMI Information Technology 25/50 Index. This modified market cap-weighted index pulls from the entire investable market and includes large-, mid-, and small-cap technology stocks with certain screens to limit the weighting of mega-cap companies. Its three largest holdings are still Apple, Microsoft, and Nvidia.
So, while the QQQ has diversification beyond the tech sector, the Fidelity ETF has broader diversification within the sector.
The cheapest ETF in its class
The other advantage for the Fidelity MSCI Information Technology ETF is its low cost. This ETF beats all competitors on fees with a low expense ratio of 0.08%. That is cheaper than even the Vanguard Information Technology ETF and the Technology Select Sector SPDR ETF, which both have an expense ratio of 0.10%.
And it is also below the Invesco QQQ, which has an expense ratio of 0.20%.
When you consider its performance, diversification within the tech sector, and low expense ratio, the Fidelity MSCI Information Technology ETF just might be the best technology ETF out there.