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SOURCE: FLICKR USER GOTCREDIT.

The proliferation of ETFs has arguably been the best trend for ordinary retail investors during the past decade. Because they're composed of many different stock holdings, ETFs offer investors instant diversification, much like mutual funds. However, ETFs generally offer this diversification with lower fees, more price transparency, and better tax efficiency.

However, you should still learn about an ETF and the niche it represents before you buy a share of it. This consideration is especially important in the fast-moving technology field.

With that in mind, let's look at the top non-levered, non-inverse tech-sector ETF this week. With more than $200 million in assets under management and sufficient trading volume, this ETF outperformed the Nasdaq Composite's 0.6% loss for trading week ended Feb. 12.

A brief respite from a bear market
The NASDAQ took a brief respite from panicked selling that's gripped the markets this week. On Friday, speculation that OPEC would come to an agreement to limit oil supply led to a 12% rally in oil and eased greater fears on Wall Street. In technology, investors continue to migrate toward "old tech" -- cash-rich companies with dependable business models. As a result, First Trust NASDAQ Technology Dividend ETF (NASDAQ:TDIV) narrowly beat the Nasdaq's performance this week.

There's a lot to like about this ETF: The fund's expense ratio of 0.5% is middle of the road, but the underlying investments are cheap versus the greater market. The ETF has a price-to-earnings ratio of 15 times and a dividend yield of 2.7%. This week's performance was led by its underlying investments in Cisco Systems (NASDAQ:CSCO) and Texas Instruments (NASDAQ:TXN), which together comprise over 10% of the index. But perhaps the best reason to like this ETF is a surprise to most investors.

Come for the dividends; stay for the buybacks
Cisco shrugged off the macro fears when it announced its fiscal second-quarter results. Versus Thompson Reuters' analyst expectations of $11.75 billion in revenue and $0.54 in EPS, the company produced results of $11.8 billion and $0.57, respectively. Even better for investors, the company added $15 billion, or nearly 12% of the company's total market capitalization, to its existing share buyback program. Cisco shares rallied 9.6% this week, with the majority of gains due to Thursday announcement.

The ETF was further aided by a 2.5% gain for Texas Instruments this week. The company held a meeting with analysts on Tuesday with specific plans on its capital allocation strategy. To say Texas Instruments' new policy is investor friendly is an understatement; the company plans to return 100% of total free cash flow back to investors in the form of dividends and share buybacks. The company has nearly $8 billion left in its share buyback program, or 15% of its total market capitalization, to deploy at will in order to support the stock's price.

While First Trust's ETF focuses on dividends, there appears to be a strong correlation between tech companies that pay dividends and those with share buyback programs. In addition to the aforementioned firms, No. 1 ETF holding Microsoft, No. 2 holding IBM, and No. 5 Apple repurchased shares last reported quarter with amounts of $3.7 billion, $764 million, and $6 billion, respectively.

If you're in the market for cash-producing investments that pay dividends and share buybacks, look into First Trust's Dividend ETF to see if it fits your investing profile.

 

Jamal Carnette owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool recommends Cisco Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.