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Best Technology ETFs

From the Apple iPhone in your pocket to the Microsoft laptop on your desk, the wave of technology marches forward every day. Lucky for you, you can capitalize on this growing digital trend by investing in the massive tech sphere.

From home computers to commercial IT equipment and from government drone programs to the attendance software used in elementary schools, you’ll be hard-pressed to find an industry that doesn’t rely heavily on technology.

A seemingly endless number of ways to make our tech faster, more durable, and more accessible, it seems that nothing can stop the global tech takeover. When it comes to investing in the constantly-expanding technology sector, investing in an industry ETF can offer the perfect solution for skittish investors; ETFs combine the professional skills of active management with the liquidity of individual stocks for a position that’s as easy to enter as it is to exit. But what should you look for in a technology ETF—and which offerings are the real deal?

We’ve compiled a list of some of the best technology ETFs on the market alongside some tips to help you distinguish an ETF that’s poised for success and growth from one that will be a drain on your portfolio.

Quick Look: The Best Technology ETFs

  • Featured ETF: Evolve Cyber Security ETF (TSX: CYBR)
  • Vanguard Information Technology ETF (VGT)
  • Technology Select Sector SPDR Fund (XLK)
  • Global X FinTech ETF (FINX)
  • KraneShares Emerging Markets Consumer Technology ETF (KEMQ)
  • First Trust Cloud Computing ETF (SKYY)
  • Communications Services Select Sector SPDR Fund (XLC)

Why Invest in an ETF?

Investing in the total technology market by purchasing an ETF comes with a number of benefits over buying and selling individual stocks, including:

Instant diversification

ETFs are bought and sold through brokerage firms as a sort of “bundle” package; each ETF includes a number of related stocks hand-picked by investment professionals and industry insiders. This means that when you buy into an ETF, you’ll instantly be receiving a diverse collection of related stock options.

This also means that you’ll have to spend less time researching each individual corporation’s management team, future plan, and business model—the professionals have already done all the intellectual heavy-lifting.

Lower fees

Mutual funds are great for investors who want the peace of mind that goes along with knowing that a professional manages the fund’s operations, but high fees of up to 10% can scare off even the most confident investors.

ETFs cost significantly less when it comes to fees when compared to the average mutual fund; the standard range of ETF expense ratios is between 1.10% and 1.25% of the fund’s earnings. Keep in mind that ETFs are bought and sold through a brokerage firm like regular shares of stock, so you’ll need to keep an eye on your brokerage firm’s commission prices to ensure that your account isn’t bleeding away your earnings in fees, commissions and expenses.

Greater trading flexibility

When you purchase a mutual fund from a firm that issues the shares, you don’t actually receive the share instantly—instead, your brokerage firm will buy the share at the close of the trading day and will wait to see what each stock’s value is at the end of the day before announcing to investors how much they have aid for each share.

While the end-of-day buying and selling process is fine for most long-term investors, day traders and those who are interested in greater liquidity will enjoy the stock-like movements of ETFs. ETFs trade during the day like a traditional share of stock, which allows professional investors to move money between asset classes on a near instantaneous basis.

No minimum investment

Most mutual funds have a minimum investment amount that ranges from $1,000 for IRAs and student accounts to $100,000 for industry-specific low-fee shares.

When you buy into an ETF, you can buy into the fund for as little as the price of one share. This makes ETFs a better class of investments for younger investors who may not be able to afford the minimum investment threshold that controls many mutual funds and index funds.

What Should You Look for in a Tech ETF?

Before you purchase a tech ETF, make sure to do you research and take note of the following.

A reasonable amount of assets

Like when you are shopping for a mutual fund, you’ll want to buy into an ETF with a decent amount of assets—at least $10 million.

ETFs with a lower amount of assets than this typically means that there is limited interest in the fund—and as is the case with stocks and other types of funds, limited interest means lower liquidity and more difficulty selling your shares when it comes time to cash out.

A healthy mix of assets

The best technology ETFs offer a mix of large-, medium- and small-cap stocks. This offers investors a higher level of diversification, which can protect them against loss in the event of a patent expiration, corporate leadership scandal or successful competitors.

Be wary of ETFs that place a large percentage of holdings into one or two stocks—this lack of diversity can put you at risk.

Low fees

ETFs can be passively or actively managed, but as a general rule, you shouldn’t spend more than 1.30% of your earnings on management.

Keep in mind that you’ll also have to pay commissions when buying and selling ETFs because the assets trade like stocks—factor this cost in and don’t be afraid to shop around for a broker before making a commitment.

The Best Technology ETFs to Buy Today

Featured ETF: Evolve Cyber Security Index ETF (TSX: CYBR)

With dozens of high-profile cybercrimes branded in public memory over the last few years, nobody can doubt that cybercrimes are increasing at a high rate. And, of course, cyber security companies see more business as governments, small businesses and major corporations seek to protect themselves from a costly breach or attack. 

For traders and investors wanting to cash in on this trend: there’s an ETF for that. Traded on the Toronto Stock Exchange and Canada’s first cyber security ETF, the Evolve Cyber Security Index Fund (TSX: CYBR) looks to replicate the Solactive Global Cyber Security Index Canadian Dollar Hedged.

It invests in both international and domestic cyber security companies, including Palo Alto Netowrks, Inc., Check Point Software Technologies and Symantec Corp. The ETF’s unedged class (TSX: CYBR.B) reported an impressive return of 19.40%, before fees, for 2018. The management fee currently sits at 0.40%. 

Vanguard Information Technology ETF (VGT)

Vanguard may be well-known as the king of low-cost mutual funds, but the investing powerhouse has also mastered the ETF as well.

The Vanguard Information Technology ETF attempts to track the MSCI US Investable Market Information Technology 25/50 Transition Index, which is mostly composed of large-cap corporate holdings like the Apple corporation, Microsoft, and Visa Inc.

The fund also holds about 18% of its holdings in medium and small cap corporations, and the fund holds only about 35% of its holdings in the fund’s top three assets. The Vanguard Information Technology ETF employs a passive management strategy and carries a shockingly low expense ratio of just 0.10%.

Perfect for the new tech investor, the Vanguard Information Technology ETF offers a large representation of the best technology companies in the United States.

Technology Select Sector SPDR Fund (XLK)

The Technology Select Sector SPDR Fund is an ETF that invests most of its holdings in companies that produce software, semiconductors and semiconductor equipment, and communications equipment.

The fund seeks to track the Technology Select Sector Index, which is considered to be representative of the telecoms industry of the United States. The fund divides its $20 billion worth of holdings between 67 assets, and stock in Apple, Microsoft and Intel makes up some of the top holdings.

Like the Vanguard Information Technology ETF, the Technology Select Sector SPDR employs a passive management strategy and offers a low expense ratio of just 0.13%. You won’t find anything groundbreaking within the ETF’s offerings, but its consistent performance is worth the investment.

Global X FinTech ETF (FINX)

Financial technology (FinTech) is one of the fastest growing spheres of the tech industry, as more and more banks move their operations online and increase the need for financial and identity-protective measures.

The Global X FinTech ETF seeks to track the performance of the Index Global FinTech Thematic Index, investing in corporations researching financial technology with high potentials for growth. Some of the fund’s largest holdings are in Square, Intuit and PayPal.

If you’re interested in investing in some of the largest names that have disrupted the financial services sector, the Global X FinTech ETF offers a low-expense, all-in-one option.

KraneShares Emerging Markets Consumer Technology ETF (KEMQ)

The U.S. is far from the only country that has experienced a wave of technological advancement.

The KraneShares Emerging Markets Consumer Technology ETF tracks the Solactive Emerging Markets Consumer Technology Index which selects stocks from companies in developing nations whose businesses are based around internet retail, the spread of internet services to emerging countries and payment processing.

Some of the fund’s top holdings are in NetEase (a Beijing-based internet service provider expanding service to rural China), MercadoLibre (an Argentinean e-commerce site similar to eBay), and Naspers LTD (an internet service provider and media company based out of South Africa).

Though the fund has a higher level of risk due to the inherent volatility of developing countries’ economies, it can be particularly beneficial for younger investors and those interested in investing in companies with high potential for appreciation.

First Trust Cloud Computing ETF (SKYY)

Cloud computing is a type of file storage that uses remote servers to store and process large amounts of data; if you have a laptop, you probably use some form of cloud computing to manage your software.

Cloud computing has also made mobile photo storage and email possible, and you can thank the cloud for making brick-sized cell phones a thing of the past. The First Trust Cloud Computing ETF manages 30 securities and tracks the ISE Cloud Computing Index; this index exclusively includes shares of corporations that are directly responsible for cloud hosting, maintenance, and development, along with a few supporting industries.

Some of the fund’s largest holdings are in Netflix, NetApp, Inc. and Salesforce.com. With an expense ratio of 0.60% (on the low-average end for ETFs), First Trust Cloud Computing offers a simple way for investors to support this niche slice of the tech industry.

Communications Services Select Sector SPDR Fund (XLC)

The Communications Services Select Sector SPDR Fund tracks the Communication Services Select Sector Index, which seeks to act as a representation of the S&P 500’s communications sector.

Some of the fund’s top holdings are in Facebook, the Walt Disney Corporation and Alphabet. The fund’s expense ratio is very small at just 0.15%, and with a projected growth rate of 12% over the next three to five years, the Communications Services Select Sector SPDR can make a great choice if you’re a novice investor who takes Warren Buffett’s legendary advice to “buy into companies you would be proud to own.”

Final Thoughts

You may have noticed that most ETFs follow an index. Balance out your ETF portfolio with a total market index fund, and you can help protect your investments in the event of a negative industry movement.

To learn more about index funds, check out our list of the best index funds currently on the market.

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