Equity: U.S. Technology

PSCT Top Performer Intra-day
Price $72.66
Today’s Change +1.30%(1.82)
4:00pm 04/24/2017
TCHF Bottom Performer Intra-day
Price 0.00
Today’s Change 0.00%(0.00)
  • Overview
  • Efficiency
  • Tradability
  • Fit

ETF.com Insight

With well over $20B in AUM across ten ETFs, US Technology is a hugely popular sector, likely mirroring individual investor’s longstanding quest to find the next big thing in tech.VGT and FTEC distinguish themselves by holding the two deepest holdings baskets and charging the two lowest fees However, the funds in this space differ tremendously in coverage, all-in costs and performance.

Of the ten funds competing for investor dollars, four are broad, market-cap weighted ETFs, while the other six attempt to beat or at least recast the market in some way. The plain-vanilla ETFs–IYW, VGT, XLK, and FTEC–differ subtly from one another. IYW, our Analyst Pick for the segment, provides excellent tracking that reduces the sting of its higher fee. Meanwhile, XLK stands out for its phenomenal liquidity while VGT and FTEC distinguish themselves by holding the two deepest holdings baskets and charging the two lowest fees in the segment.

The six ETFs offering alternative exposure to US technology companies each take different approaches to selecting and rearranging their portfolio with the goal of outperforming their plain-vanilla counterparts. Most of these funds reduce the weight of the industry’s largest companies like Apple and Microsoft. Sometimes these rearranged portfolios have outperformed their plain-vanilla competitors but over many periods they have failed to do so. Still, the funds share a common theme–capturing opportunities from smaller tech firms with growth potential.

RYT, MTK and QTEC equally weight their baskets, but differ in their selection process. MTK holds US-listed companies, while QTEC only holds Nasdaq-listed firms. In contrast, RYT pulls its portfolio of tech companies from the S&P 500; This unique approach earns it a spot on our “Opportunities” list.

Meanwhile, PTF and FXL use quantitative models to select and weight their portfolios. These funds rely on technical analysis and concepts such as momentum to generate performance—sometimes these approaches have worked and other times they haven’t. 

Lastly, PSCT focuses explicitly on small- and micro-cap companies. The alternative funds tend to come with higher all-in costs due to higher fees, poorer tracking and/or weaker liquidity. While these funds suffer in comparison to their extremely efficient and liquid broad market peers, for the most part they can still be held and traded with manageable costs and risks. (Insight updated 04/24/17)

All Funds (14)

IYW $3.29 B 3293033580 Broad, but expensive.

A 96
E
92
92
T
99
99
F
96
96

VGT $12.24 B 12238646088.6 Most comprehensive.

A 95
E
99
99
T
99
99
F
95
95

FTEC $807.58 M 807579630 Lowest fee in segment

A 95
E
100
100
T
98
98
F
95
95

XLK $17.07 B 17073297583.293 Highest Liquidity

A 90
E
98
98
T
99
99
F
90
90

MTK $662.58 M 662581042.44904 Only holds electronics

A 74
E
91
91
T
88
88
F
74
74

RYT $1.23 B 1229733400 Equal-weighted large caps.

A 69
E
93
93
T
98
98
F
69
69

FXL $651.09 M 651088240 Quant model.

A 63
E
88
88
T
98
98
F
63
63

QTEC $1.92 B 1923474420.594 Equal-weighted large caps.

A 61
E
88
88
T
99
99
F
61
61

PSCT $502.8 M 502803000 Small caps only.

A 39
E
95
95
T
87
87
F
39
39

JHMT $41.29 M 41285280 broad-based tech

B 83
E
85
85
T
67
67
F
83
83

PTF $133.07 M 133071000 Technical analysis

B 51
E
87
87
T
73
73
F
51
51

XITK $6.44 M 6443362.1 N/A

C 51
E
85
85
T
63
63
F
51
51

TCHF $3.36 M 3357830 N/A

N/A 0
E
0
-1
T
0
-1
F
0
-1

XK $1.61 M 1608532.17 N/A

N/A 0
E
0
-1
T
0
-1
F
0
-1

ETF.com Grade as 04/20/17

Equity: U.S. Technology

Performance Dispersion
Performance  [as of 04/21/17] 1 Month 3 Month YTD 1 Year 3 Years 5 Years 10 Years
Benchmark: Thomson Reuters US Technology1.49%8.25%12.01%25.58%15.66%14.60%--
A 96.053747IYW3293033580IYWiShares U.S. Technology ETF1.45%8.55%12.27%25.69%15.75%13.84%10.05%
A 94.774909VGT12238646088.6VGTVanguard Information Technology Index Fund1.49%8.11%11.75%25.12%16.04%15.08%10.55%
A 94.71314FTEC807579630FTECFidelity MSCI Information Technology Index ETF1.58%8.17%11.60%25.05%16.10%----
A 89.752304XLK17073297583.293XLKTechnology Select Sector SPDR Fund1.06%7.18%10.37%22.37%15.77%14.78%9.92%
A 74.13857MTK662581042.44904MTKSPDR Morgan Stanley Technology ETF2.55%9.18%13.98%31.29%15.63%16.13%9.86%
A 69.289561RYT1229733400RYTGuggenheim S&P 500 Equal Weight Technology ETF1.75%7.74%11.57%31.18%16.55%17.87%9.73%
A 62.6063FXL651088240FXLFirst Trust Technology AlphaDEX Fund1.60%7.66%10.67%29.63%11.86%13.52%--
A 60.941417QTEC1923474420.594QTECFirst Trust NASDAQ-100 Technology Sector Index Fund1.95%9.43%14.42%43.17%19.04%18.56%11.94%
A 39.205661PSCT502803000PSCTPowerShares S&P SmallCap Information Technology Portfolio-0.10%2.06%2.46%31.59%17.57%19.00%--
B 82.540803JHMT41285280JHMTJohn Hancock Multifactor Technology ETF1.75%8.29%11.64%29.23%------
B 51.207472PTF133071000PTFPowerShares DWA Technology Momentum Portfolio1.42%7.79%10.60%20.94%10.18%10.66%4.93%
C 51.035613XITK6443362.1XITKSPDR FactSet Innovative Technology ETF3.05%6.35%10.39%21.07%------
N/A 0TCHF3357830TCHFiShares Edge MSCI Multifactor Technology ETF0.66%8.70%11.44%--------
N/A 0XK1608532.17XKElkhorn S&P MidCap Information Technology Portfolio-0.31%7.09%----------
All returns over 1 year are annualized. All returns are total returns unless otherwise stated.

ETF.com Efficiency Insight

Tracking differences vary significantly within the US Technology segment, but the story is best told through expenses. A fund’s expense ratio is the single best predictor of how fartracking difference represents actual results an ETF will trail its own underlying index over any 1-year holding period. That definitely rings true here as the funds that charge the lowest fees track their indices the tightest.

At one end, VGT, FTEC, and XLK charge the lowest fees while at the other end FXL charges a steep price. Even worse, at the high-end of the expense spectrum many of the funds trail their indices by significantly more than their expense ratio otherwise suggests. To be clear, a fund’s stated expense ratio is the amount by which you can expect its performance to lag the performance of its index whereas tracking difference represents actual results.

PowerShares’ PTF changed its index in Feb 2014 to a momentum driven Dorsey Wright index. It did indeed cause some tracking problems, but the difference between the fund and the index has settled some in recent months. That being said, it still isn't cheap.

Note: We compare MTK to a price return index. Any appearance of positive tracking error–outperformance–is fictitious. (Insight updated 04/24/17)

All Funds (14)

99
98.522959
98
98.439959
95
95.253345
93
92.905434
92
91.938034
91
91.439433
88
88.037777
88
87.850721
87
86.795809
85
85.03162
85
84.814856
100
100
N/A
0
N/A
0

ETF.com Grade as 04/20/17

Equity: U.S. Technology

Tracking Difference (12 Month)

Ticker Expense Ratio Median Max. Upside Max. Downside Max LT/ST Cap Gains Rate Rule Legal Structure Fund Closure Risk Efficiency
VGT Vanguard Information Technology Index Fund 0.10% -0.11% -0.08% -0.15% 20.00% / 39.60% Low 98.522959
XLK Technology Select Sector SPDR Fund 0.14% -0.19% -0.13% -0.29% 20.00% / 39.60% Low 98.439959
FTEC Fidelity MSCI Information Technology Index ETF 0.08% -0.09% -0.02% -0.22% 20.00% / 39.60% Low 100
XITK SPDR FactSet Innovative Technology ETF 0.45% -- -- -- 20.00% / 39.60% High 85.03162
FXL First Trust Technology AlphaDEX Fund 0.63% -0.56% -0.28% -0.83% 20.00% / 39.60% Low 87.850721
TCHF iShares Edge MSCI Multifactor Technology ETF 0.35% -- -- -- 20.00% / 39.60% High 0
IYW iShares U.S. Technology ETF 0.44% -0.55% -0.41% -0.68% 20.00% / 39.60% Low 91.938034
XK Elkhorn S&P MidCap Information Technology Portfolio 0.29% -- -- -- 20.00% / 39.60% Low 0
JHMT John Hancock Multifactor Technology ETF 0.50% -- -- -- 20.00% / 39.60% Low 84.814856
MTK SPDR Morgan Stanley Technology ETF 0.35% 1.00% 1.23% 0.90% 20.00% / 39.60% Low 91.439433
PSCT PowerShares S&P SmallCap Information Technology Portfolio 0.29% -0.35% -0.26% -0.46% 20.00% / 39.60% Low 95.253345
PTF PowerShares DWA Technology Momentum Portfolio 0.60% -0.84% -0.70% -1.00% 20.00% / 39.60% Low 86.795809
QTEC First Trust NASDAQ-100 Technology Sector Index Fund 0.60% -0.84% -0.59% -1.14% 20.00% / 39.60% Low 88.037777
RYT Guggenheim S&P 500 Equal Weight Technology ETF 0.40% -0.54% -0.41% -0.70% 20.00% / 39.60% Low 92.905434

ETF.com Tradability Insight

There is an abundance of readily liquid and tradable funds in the US Technology segment. As is often the case, however, there’s a range from the precariously illiquid to thean abundance of readily liquid and tradable funds in the US Technology segment ultra-liquid.

XLK, IYW, and VGT are the clear liquidity leaders. Their exceptional liquidity benefits small and large investors alike. XLK dominates the segment with a median daily volume of about ten times more than the next most actively traded fund: VGT. Still, IYW and VGT trade impressive volumes north of $20M most days.

The next tier of liquidity includes funds that trade more than $1M most days. The funds here include FTEC, QTEC, RYT, PTF, and FXL, all of which trade at small average spreads as well. In short, these funds too are readily tradable.

The last tier of funds includes those with less than $1M of volume most days and, in general, require a higher level of attention to execution. The funds included here are PSCT and MTK. PSCT trades at relatively wide bid/ask spreads in comparison to other funds in the segment.

Investors should consider using limit orders set around iNAV when trading any of the funds here but this recommendation is particularly salient for funds in the lower liquidity tiers. Limit orders will help investors contain trading costs by reducing the execution uncertainty inherent in market orders.

A product of their US-listed and liquid underlying holdings, investors trading large blocks should fare well in practically any of the US tech ETFs. That’s because all of the funds charge reasonable creation fees and hold liquid US-listed securities where market impact is unlikely and hedge-ability is high. Contact a liquidity provider or the capital markets desk of the ETF you’re trading to find efficient execution for large block trades. (Insight updated 04/24/17)

All Funds (14)

99
99.465665
99
99.355475
99
99.03474
99
98.749702
98
98.200084
98
98.034747
98
97.857115
88
87.746826
87
86.553892
73
73.380237
67
66.520182
63
62.615262
N/A
0
N/A
0

ETF.com Grade as 04/20/17

Equity: U.S. Technology

Ticker Median Daily Volume ($) Average Spread Creation Unit/Day Market Hours Overlap Underlying Volume/Unit % Creation Cost Per Unit (%) Impediment to Creations Score - Tradability
XK Elkhorn S&P MidCap Information Technology Portfolio $0 0.39% 0 100.00% 0.05% 0.06% None 0
FTEC Fidelity MSCI Information Technology Index ETF $6.8 M 0.05% 3.35 100.00% 0.01% 0.06% None 97.857115
FXL First Trust Technology AlphaDEX Fund $4.45 M 0.04% 2.13 100.00% 0.05% 0.02% None 98.200084
IYW iShares U.S. Technology ETF $18.28 M 0.02% 2.76 100.00% 0.03% 0.01% None 99.355475
JHMT John Hancock Multifactor Technology ETF $93.96 K 0.20% 0.05 100.00% 0.01% 0.03% None 66.520182
MTK SPDR Morgan Stanley Technology ETF $1.26 M 0.35% 0.75 100.00% 0.05% 0.01% None 87.746826
PSCT PowerShares S&P SmallCap Information Technology Portfolio $2.95 M 0.18% 0.80 100.00% 0.61% 0.01% None 86.553892
PTF PowerShares DWA Technology Momentum Portfolio $378.41 K 0.18% 0.17 100.00% 0.14% 0.02% None 73.380237
QTEC First Trust NASDAQ-100 Technology Sector Index Fund $10.46 M 0.03% 3.52 100.00% 0.04% 0.02% None 98.749702
RYT Guggenheim S&P 500 Equal Weight Technology ETF $7.12 M 0.05% 1.19 100.00% 0.07% 0.01% None 98.034747
VGT Vanguard Information Technology Index Fund $50.41 M 0.03% 14.89 100.00% 0.01% 0.03% None 99.03474
XLK Technology Select Sector SPDR Fund $393.02 M 0.02% 147.79 100.00% 0.01% 0.02% None 99.465665
XITK SPDR FactSet Innovative Technology ETF $293.3 K 0.24% 0.09 100.00% 0.19% 0.01% None 62.615262
TCHF iShares Edge MSCI Multifactor Technology ETF $13.91 K 0.25% 0.01 100.00% 0.03% 0.01% None 0

ETF.com/ Block Liquidity

FTEC
5
4
3
2
1
FXL
5
4
3
2
1
IYW
5
4
3
2
1
JHMT
5
4
3
2
1
MTK
5
4
3
2
1
PSCT
5
4
3
2
1
PTF
5
4
3
2
1
QTEC
5
4
3
2
1
RYT
5
4
3
2
1
VGT
5
4
3
2
1
XLK
5
4
3
2
1
XITK
5
4
3
2
1
TCHF
5
4
3
2
1
XK
5
4
3
2
1

This measurement shows how easy it is to trade 25,000 shares of each ETF.

ETF.com Fit Insight

Investors looking for US Technology ETFs must first decide whether they want broad, marketlike exposure or if they want a fund that tilts away from the market. Some of the funds that tiltFour funds offer marketlike exposure away from the market do so to target a specific subset of technology companies while others do so in a bid to generate outperformance.

Four funds offer marketlike exposure: IYW, VGT, XLK and FTEC. Even within these broad and representative funds, material differences exist. FTEC and VGT are notable for having the deepest holdings baskets of all the US tech ETFs. Meanwhile, IYW and XLK hold only a fraction of the number of companies that FTEC and VGT do. In general though, all four of these funds allocate the largest portion of their assets to software & IT companies as well as computers & home electronics companies. It is worth noting, however, that XLK picks its technology companies from a much more restrictive universe: It only includes tech companies that are in the S&P 500—that means XLK investors miss out on many mid-, small-, and micro-cap companies. IYW also culls its portfolio from a restrictive universe but still holds nearly twice as many holdings as XLK and includes exposure further down the market cap spectrum.

The remaining funds range from the quant- and technicals-driven ETFs to the equal-weighted funds. The quant- and technicals-driven funds include FXL and PTF. FXL uses a combination of technical and fundamental factors to select its portfolio then uses a tiered weighting scheme to assemble its portfolio. FXL’s methodology currently tilts it toward smaller companies and ultimately produces the smallest portfolio as measured by weighted average market cap. Meanwhile, PTF’s momentum based strategy tilts the fund toward smaller growth companies and semiconductor firms.

The equal-weighted funds (MTK, QTEC, and RYT) differ in their respective starting universes from which they pull stocks. QTEC only includes NASDAQ-listed companies; RYT only includes companies from the S&P 500; MTK, on the other hand, culls from a more expansive starting universe that also includes foreign tech giants that have liquid ADRs.

Lastly, PSCT is the only fund to specifically target small-cap tech companies which produces a very different portfolio from the others in the segment: Specifically, one of the highest P/E ratios, and lowest weighted average market caps.

Each of the approaches here produces different sector tilts as well as different allocations along the size spectrum. Investors trying to choose between the funds should first consider whether they want a broad, representative fund or if they want a fund that makes bets toward a specific subset of firms. Check out individual fund reports for more information on each fund. (Insight updated 04/24/17)

All Funds (14)

96
96.053747
95
94.774909
95
94.71314
90
89.752304
83
82.540803
74
74.13857
69
69.289561
63
62.6063
61
60.941417
51
51.207472
51
51.035613
39
39.205661
N/A
0
N/A
0

ETF.com Grade as 04/20/17

Equity: U.S. Technology