Tech ETFs, or exchange-traded funds, are vehicles that allow you to invest in an entire basket of technology stocks in a single investment that trades just like a common stock. There have been some massive winners in the tech sector in recent years, but there has been a lot of turbulence as well.
Exchange-Traded Fund (ETF)
On the one hand, exciting new technologies like artificial intelligence (AI) have created many potential investment opportunities. But on the other hand, stock market volatility makes many investors hesitant to pick individual tech stocks.
That's where exchange-traded fund (ETF) investing comes in. An ETF allows you to invest in a specific area of the stock market without the downsides of picking individual stocks.
There are some excellent ETFs that focus either on the overall tech sector or a specific part of it. These can give you exposure to the high-potential tech space in your portfolio but without the risks associated with investing in individual companies. In this article, we'll discuss seven top tech ETFs that are worth a look at for investors who may want to add diversified tech exposure to their portfolios.
Seven best tech ETFs
Let's take a closer look at each of these ETFs:
1. Vanguard Information Technology ETF
Vanguard is well-known for its low-cost index funds. The Vanguard Information Technology ETF certainly falls into this category, with a rock-bottom 0.09% expense ratio. This means that for every $10,000 you invest, your annual fund expenses are just $9. To clarify, an expense ratio isn't a fee you have to pay. It will simply be reflected in the ETF's performance over time.
This ETF tracks a broad index of U.S. tech companies of all sizes. However, it is a market-cap-weighted ETF, so its top holdings make up a larger proportion of its assets. In fact, the top three holdings account for 44% of the fund's total assets:
In short, the ETF is an excellent choice for investors who want a set-it-and-forget-it way to invest in the overall information technology sector.
Asset
2. Technology Select Sector SPDR ETF
The Technology Select Sector SPDR ETF is offered by State Street (STT +0.39%). It is very close to the Vanguard fund, offering a similar asset size, a low 0.08% expense ratio, and a similar benchmark index. In fact, the fund's top holdings (and their respective weights) are almost identical to the Vanguard example.
Both ETFs give you broad exposure to the information technology sector. It's tough to call one better than the other. Investors who just want to invest in tech stocks also won't go wrong with either.
3. VanEck Semiconductor ETF
Now, we're getting into more specific ways to invest in tech stocks through ETFs. The VanEck Semiconductor ETF tracks an index of semiconductor manufacturers, commonly known as chipmakers. This can be an excellent way to invest in AI technology without having to buy individual stocks.
Semiconductor
The bottom line on investing in tech ETFs
As you can see, not all tech ETFs are identical. Some track a broad index of tech companies. Others track more specialized baskets of stocks. And some take an actively managed approach or weigh their portfolios differently.
The best course of action, if you're thinking about adding some tech exposure to your portfolio, is to compare each to see which is best suited to your goals and risk tolerance.
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