Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some tech stocks to your portfolio but don't have the time or expertise to hand-pick a few, the First Trust NASDAQ-100-Tech Index (QTEC 1.96%) ETF could save you a lot of trouble. Instead of trying to figure out which tech stocks will perform best, you can use this ETF to invest in lots of them simultaneously.
The basics
ETFs often sport lower expense ratios than their mutual-fund cousins. This ETF, focused on tech stocks, sports an expense ratio -- an annual fee -- of 0.6%. The fund is fairly small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This tech ETF trounced the world market over the past five years, though it slightly lagged it over the past three. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
Why tech stocks?
Our growing world population will demand more and better high-tech products and services over time, boosting the business of successful technology-oriented companies and corresponding tech stocks.
More than a handful of tech stocks had strong performances over the past year. Micron Technology (MU 3.82%) shares have soared some 207% over the past year and seem to have more room to grow. The company's first quarter featured revenue more than doubling and earnings surpassing expectations. Micron Technology's purchase of the Japanese company Elpida has been a huge boon, turning Micron into the world's second-largest DRAM maker with twice Micron's previous memory capacity, more pricing power, and more production facilities as well. Many would like to see its dividend resurrected.
Qualcomm (QCOM 0.17%) gained 16%, but that's not so wonderful, given that the S&P 500 advanced roughly twice as much. Qualcomm supplies iDevices and Android devices with chips and makes a lot of money licensing its technology. The company's fourth-quarter report was mixed, with revenue up 33%, but management lowering expectations. Qualcomm has a lot to gain from its investments in China, and its expansion into health care and networking is quite promising, too. Its Snapdragon 805 chip impressed at the Consumer Electronics Show recently. Qualcomm has been hiking its dividend aggressively for a decade now, and its yield is at 1.9%.
Other tech stocks didn't do quite as well over the last year, but could see their fortunes change in the coming years. Communications chipmaker Broadcom (NASDAQ: BRCM), which yields 1.5%, sank by 16%. At the Consumer Electronics Show, Broadcom showcased some promising cellular offerings and teased about a slim modem. Its LTE business is growing, with Samsung having recently signed on. Broadcom has recently been upgraded to a strong buy by Zacks and to a buy at B. Riley. Analysts at Zacks like its strong third-quarter performance and innovation, while B. Riley also likes the stock's valuation and LTE strength. Broadcom's management recently upped projections for its fourth quarter, too. Still, bears worry that Broadcom is having trouble growing its business.
Programmable chipmaker Altera (NASDAQ: ALTR) shed 8%, and yields 1.9%. Altera's third quarter, reported in October, was disappointing, with profits down 24% and management warning of a weak fourth quarter. Bears worry about threats from Intel, among others. Goldman Sachs downgraded Altera from conviction buy to buy back in November, and this month shifted that down to neutral, seeing competition growing and softness in wireless spending. Still, the stock has fallen enough that it's appealing to long-term value hunters.
The big picture
If you're interested in adding some tech stocks to your portfolio, consider doing so via an ETF. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in it and profiting from it that much easier.
