How to Invest in Tech Stocks the Easy Way
Technology stocks have helped power the stock market to new all-time highs in 2017. Big-name players in the e-commerce, internet search, mobile device, and graphics chip industries have been among the most prominent winners during the surge in tech stocks, but the gains have also been widespread across the sector.
For investors who aren't sure how to invest in tech stocks at the individual level, technology ETFs offer an easy way to get the exposure you want. Between broad-based tech ETFs that own companies across the sector to more narrowly defined funds that drill down on particular sub-industry groups, you can find the investment vehicle that fits your needs the best.
Top tech ETFs
ETF | Assets Under Management | 2017 Return |
|---|---|---|
Technology Select Sector SPDR (NYSEMKT: XLK) | $19 billion | 36% |
Vanguard Information Technology (NYSEMKT: VGT) | $17.4 billion | 40% |
First Trust Dow Jones Internet Index (NYSEMKT: FDN) | $5.5 billion | 41% |
ROBO Global Robotics and Automation Index (NASDAQ: ROBO) | $1.97 billion | 43% |
iShares PHLX Semiconductor (NYSEMKT: SOXX) | $1.49 billion | 43% |
First Trust ISE Cloud Computing Index (NASDAQ: SKYY) | $1.35 billion | 36% |
ETFMG Prime Cyber Security (NYSEMKT: HACK) | $1.14 billion | 21% |
Data source: ETFdb.com.
Buying the whole sector
The largest tech ETFs offer the broadest possible exposure to technology stocks. Both the SPDR and Vanguard ETFs listed above have balanced portfolios that divide investors' money across software, internet, hardware, IT services, and semiconductor stocks.
The two have some small differences -- the SPDR includes telecom stocks, while credit card network operators play a slightly larger role in the Vanguard ETF. But with expense ratios of 0.14% for the SPDR and 0.10% for the Vanguard fund, these ETFs are roughly comparable in their exposure.
Image source: Getty Images.
Choosing a subsector
Other funds offer investors the chance to drill down on particular areas of the tech sector that they particularly like. The First Trust Internet ETF focuses on stocks associated with the internet, including e-commerce, social media, internet payment systems, video streaming, and online travel and financial services. The fund holds just over 40 stocks, and its 0.54% expense ratio makes it much more expensive than the broader-based ETFs. If you believe that the huge role the internet subsector has played in tech's rise is likely to continue, though, this fund does a good job of concentrating on the area.
Semiconductors have seen a big move higher in 2017, and the iShares ETF offers specific semiconductor exposure. A 0.48% expense ratio has a slightly higher price tag for that niche, but the fund owns a mix of well-established and up-and-coming players in the space.
Tailored exposure
Beyond officially defined industries within technology, you can also invest in thematic ideas. As its name suggests, the ROBO Global ETF emphasizes companies that specialize in robotics and automation. You'll find stocks ranging from autonomous vacuum cleaners to drones and laser producers, along with a host of other niche companies involved in the robotics movement. With annual costs of 0.95%, the ETF is the priciest on this list.
Cloud computing has been an important growth driver in technology, and the First Trust Cloud Computing ETF seeks to help investors cash in on that area. Among its holdings, you'll find major tech giants as well as smaller companies focusing on businesses like internet efficiency, virtualization, networking, and cloud software providers. First Trust charges 0.60% in annual expenses for the fund.
Finally, the ETFMG fund invests exclusively in stocks connected with protecting users for potential cyberattacks, charging a 0.60% expense ratio. With the incidence of data breaches and other cybersecurity problems on the rise, the companies the ETF identifies are best-positioned to provide lasting solutions for enterprises and individual customers alike.
Get the tech exposure you want
These ETFs are only a handful of the many offerings you can find that focus on technology stocks. Some investors will prefer buying individual stocks, but for those who aren't comfortable with stock picking, ETFs like these are the easiest way to invest in tech stocks.
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Dan Caplinger owns shares of Vanguard Information Technology ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
