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An ETF For The Future Of Tech

by
April 12, 2018 7:31 am
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Traditional technology sector exchange-traded funds usually follow a similar model. That model being large weights to the likes of Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), Alphabet Inc. (NASDAQ:GOOGL) and other massive tech titans.

Some newer technology ETFs are taking different approaches, evolving with tech investing as the sector itself evolves. One example is the iShares Exponential Technologies ETF (NASDAQ:XT). XT is often overlooked in the tech ETF conversation, though the fund is neither new nor small. It debuted over three years ago and has $2.21 billion in assets under management.

Home to nearly 200 stocks, XT tracks the Morningstar Exponential Technologies Index, a benchmark that's anything but heavy on the likes of Apple and Microsoft. With its unique methodology, XT can be an alternative or complement to traditional tech index fund exposure.

Doing Things Differently

“For one, the holdings are not limited to the tech sector,” said Morningstar. “They can come from any sector, as long as they are poised to benefit from one or more of the exponential tech themes.”

Making the cut as exponential technology themes within XT are 3D printing, clean energy, fintech, robotics, big data, nanotechnology and more. Nanotechnology is the area “of technology that deals with dimensions and tolerances of less than 100 nanometers, especially the manipulation of individual atoms and molecules,” according to Morningstar.

None of XT's holdings exceed weights of 0.78 percent, helping limit the fund's single stock risk and overall volatility. XT's three-year standard deviation of 12.14 percent is 235 basis points below the same metric on the Dow Jones U.S. Technology Index.

Health Care, Too

While XT allocates 32.5 percent of its weight to the technology sector, the fund is a viable health care play as well with a weight of almost 31 percent to that group. XT's health care exposure includes medicine and neuroscience along with bioninformatics.

Bioninformatics is the “science of collecting and analyzing complex biological data,” said Morningstar.

Investors have added over $604 million to XT this year.

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