Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some technology-heavy stocks to your portfolio, the First Trust NASDAQ-100-Tech Index ETF (QTEC 1.14%) could save you a lot of trouble. Instead of trying to figure out which companies 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. The First Trust ETF's expense ratio -- its annual fee -- is a relatively low 0.60 %.
This ETF has performed reasonably, beating the world market over the past three and five years. 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 technology?
Our growing world population will demand more and better high-tech products and services over time, boosting the business of successful technology-oriented companies.
More than a handful of technology-heavy companies had strong performances over the past year. Micron Technology (MU +0.21%) surged 118%, despite challenges from a struggling PC market. Bulls are hopeful that growth in tablets and smartphones will boost demand for memory chips. Micron's purchase of Japanese manufacturer Elpida has some investors quite optimistic, as it boosts Micron's capacity and its relationship with Apple. Some worry about competition, the commoditization of memory, and Micron's debt levels. The company beat expectations for both revenue and earnings in its last quarter.
Network storage specialist NetApp (NTAP 1.08%), meanwhile, jumped 22%. The company recently initiated a dividend, and it's yielding 1.6% these days. Some have sent the shares up on hopes that an activist investor might help the company's prospects, but the stock is also significantly shorted. NetApp announced layoffs and boosted its share buyback plans – though buybacks are often regrettable. The company recently posted disappointing revenue numbers, but it still looks attractive to some, in part due to strong free cash flow. Some also wonder whether NetApp might end up acquired by another major data player, such as Oracle.
NVIDIA (NVDA 0.80%), one of the biggest mobile-application processor companies, gained 7%. You know a company is facing some challenges when articles about it refer to "hail Marys" in their titles. NVIDIA recently delayed its handheld gaming hardware launch, and took a hit. Some questioned whether its new cloud technology is the smartest move. Still, it's posting net gains and positive free cash flow, and is poised to benefit from robust expected global smartphone growth.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Nuance Communications (NUAN +0.00%), a major developer of speech-recognition software, shed 19%, in part due to some disappointing earnings. Nuance is threatened by weak demand, shrinking margins, and intensifying competition. Carl Icahn has taken a big stake in the company, but some doubt the wisdom of that. With its seemingly low valuation, some see it as a buyout candidate, and bulls like its prospects in health care.
The big picture
Demand for technology isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
