How to invest in tech ETFs

There have been some huge winners in the tech sector in recent years, but there’s also been a lot of turmoil — especially during the 2022 market crash, with many investors afraid to pick individual tech stocks.

This is where ETF investing comes in. There are some very good ETFs that focus on the technology sector as a whole or a specific sector. These can give you exposure to a high-tech position in your portfolio, but there are risks associated with investing in any company. In this article, we discuss seven top tech ETFs that investors looking to add diversified technology exposure to their portfolios should look for.

Seven high-tech ETFs to consider

Let’s take a closer look at each of these exchange-traded funds:

1. Vanguard Information Technology ETF

Vanguard is known for its low-cost index funds, and the Vanguard Information Technology ETF certainly falls into that category with its rock-bottom 0.10% expense ratio. This means that for every $10,000 you invest, your annual cash outlay is only $10.

The ETF tracks a broad index composed of US technology companies of all sizes, and, as a market capitalization-weighted ETF, includes top holdings such as companies. Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), and Nivea (NASDAQ:NVDA) In short, it’s a good choice for investors looking for a set-it-and-forget-it approach to investing in the information technology sector as a whole.

2. Select Technology Sector SPDR ETF

The Technology Select Sector SPDR ETF is very close to the Vanguard Fund. The asset size is the same, has an expense ratio of 0.10%, and tracks a very similar index. Indeed, the fund’s top holdings are similar to Vanguard’s example.

Vanguard and Technology Select are two very similar ETFs for broad exposure to the information technology sector, and it’s hard to declare that one is better than the other. Investors who only want to invest in “tech stocks” are not wrong either.

3. VanEck Semiconductor ETF

Now we’re delving into more unique ways to invest in tech stocks through ETFs. The VanEck Semiconductor ETF tracks an index of semiconductor (chip maker) manufacturers. Navia is a top holding as well. Taiwan Semiconductor (NYSE:TSM), Broadcom (NASDAQ: BRCM), Texas Instruments (NYSE:TXN), and Applied materials (NASDAQ:AMAT), to name a few.

The ETF has a slightly higher expense ratio of 0.35%, but it’s worth noting that investors can expect to pay a little more for such specialty ETFs.

4. iShares Cybersecurity and Tech ETF

It seems like every two weeks there is another high-profile data breach, and the complexity of threats (especially in the cloud) is increasing. Investing in cybersecurity stocks can be an exciting opportunity for patient, long-term investors, and the iShares Cybersecurity and Tech ETF allows you to focus your money on this technology subsector.

The ETF has an expense ratio of 0.47%, which is on par with others of similar size and specialization. It aims to track an index of cyber security stocks, of which it has significant holdings Booth Allen Hamilton (NYSE:BAH), Juniper Networks (NASDAQ:JNPR), Palo Alto Networks (NASDAQ:PANW), and many other names you may recognize.

5. Invesco QQQ ETF

No discussion of tech ETFs would be complete without mentioning the Invesco QQQ ETF, which is by far the largest Nasdaq-tracking exchange-traded fund.

The QQQ ETF has a relatively low expense ratio of 0.20% and tracks the NASDAQ 100 Index, which is basically an index of the largest stocks listed on the Nasdaq exchange. The QQQ ETF is not a pure technology ETF; It’s very tech-heavy. About 48% of the fund’s assets are invested in the technology sector and 15% in communications stocks. Top jobs at Apple, Microsoft, Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG), and Tesla (NASDAQ:TSLA)

The Invesco QQQ ETF may be appropriate for investors who want exposure to a technology-heavy portfolio but don’t want to rely solely on the technology sector.

6. Invesco S&P 500 Equal Weight Technology ETF

One big danger with all five EFAs discussed so far is that they are too heavy. Because they are market-cap-weighted and there are many blue-chip tech stocks with market capitalizations in the trillions of dollars, they are highly concentrated in a few stocks. As an example, Apple works More than 20% Both the Vanguard and SPDR ETFs discussed earlier.

The Invesco S&P 500 Equal Weight Technology ETF aims to create a truly diversified basket of technology stocks by allocating an equal amount of assets to each company in the index it tracks. In other words, a relatively small company in the index, e.g Hewlett-Packard Enterprises (NYSE:HPE), gets the same exposure as a giant company like Nvidia. The expense ratio of 0.40% is very reasonable and is a choice for investors who are not looking for their return on investment which can be highly dependent on the success of any company.

7. ARK Innovation ETF

The first six ETFs all have one major feature in common – they are all passive funds. In other words, they are all designed to simply track a stock index and correlate its performance over time.

In contrast, the ARK Innovation ETF is actively managed by renowned investor Cathy Wood and her team and is designed to leverage innovative and fast-growing technology companies. They are currently the fund’s five largest holdings. Zoom in (NASDAQ:ZM), Tesla, year (NASDAQ: ROKU ), Exact sciences (NASDAQ: EXAS), and Block (NYSE:SQ)

The idea is to invest the fund’s assets in the most attractive opportunities at any given time, the ARK Innovation ETF aims to beat the performance of the overall technology sector. Of course, the fund didn’t exactly do well in 2022. But if you’re looking for market-beating performance potential, this ETF is worth a closer look.

The bottom line is investing in tech ETFs

As you can see, not all technology ETFs are the same. Some track a broad index of technology companies, others track more specialized baskets of stocks, and still others take an actively managed approach. If you’re thinking of adding some technology exposure to your portfolio, the best course of action is to compare each to see which one fits your goals and risk appetite.