Equity: U.S. Technology

PTF Top Performer Intra-day
Price $43.70
Today’s Change +0.42%(0.98)
3:49pm 02/24/2017
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 02/24/17)

All Funds (14)

IYW $3.43 B 3433229220 Broad, but expensive.

A 98
E
92
92
T
99
99
F
98
98

FTEC $724.44 M 724435110 Lowest fee in segment

A 93
E
99
99
T
98
98
F
93
93

VGT $11.64 B 11640193527.2 Most comprehensive.

A 93
E
99
99
T
99
99
F
93
93

XLK $16.74 B 16738204556.083 Highest Liquidity

A 88
E
98
98
T
99
99
F
88
88

MTK $651.26 M 651257182.07046 Only holds electronics

A 72
E
91
91
T
86
86
F
72
72

RYT $1.1 B 1103854200 Equal-weighted large caps.

A 69
E
93
93
T
98
98
F
69
69

FXL $569.92 M 569918735 Quant model.

A 62
E
88
88
T
98
98
F
62
62

QTEC $1.82 B 1824719267.914 Equal-weighted large caps.

A 60
E
88
88
T
98
98
F
60
60

PSCT $575.39 M 575391000 Small caps only.

A 40
E
96
96
T
89
89
F
40
40

JHMT $37.22 M 37223450 broad-based tech

B 82
E
84
84
T
68
68
F
82
82

PTF $145.14 M 145143900 Technical analysis

B 52
E
88
88
T
73
73
F
52
52

XITK $15.95 M 15954932 N/A

B 49
E
87
87
T
62
62
F
49
49

TCHF $3.32 M 3322080 N/A

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

XK $1.61 M 1614932.298 N/A

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

ETF.com Grade as 02/16/17

Equity: U.S. Technology

Performance Dispersion
Performance  [as of 02/23/17] 1 Month 3 Month YTD 1 Year 3 Years 5 Years 10 Years
Benchmark: Thomson Reuters US Technology6.36%10.70%10.10%36.37%14.98%14.61%--
A 97.709258IYW3433229220IYWiShares U.S. Technology ETF6.57%11.14%10.31%36.58%15.01%13.83%9.88%
A 93.416921FTEC724435110FTECFidelity MSCI Information Technology Index ETF6.24%10.46%9.73%36.08%15.13%----
A 93.388399VGT11640193527.2VGTVanguard Information Technology Index Fund6.26%10.46%9.89%36.10%15.14%15.07%10.43%
A 88.224677XLK16738204556.083XLKTechnology Select Sector SPDR Fund5.25%10.34%8.58%31.91%15.55%14.98%9.86%
A 72.200212MTK651257182.07046MTKSPDR Morgan Stanley Technology ETF6.88%11.29%11.43%42.73%14.56%15.67%9.49%
A 69.242558RYT1103854200RYTGuggenheim S&P 500 Equal Weight Technology ETF5.90%9.51%9.34%40.88%15.67%17.05%9.57%
A 62.014013FXL569918735FXLFirst Trust Technology AlphaDEX Fund6.26%8.58%8.89%39.78%10.38%12.75%--
A 60.474168QTEC1824719267.914QTECFirst Trust NASDAQ-100 Technology Sector Index Fund6.41%12.15%11.20%52.19%17.48%17.38%11.56%
A 39.815614PSCT575391000PSCTPowerShares S&P SmallCap Information Technology Portfolio5.10%7.15%5.40%46.33%17.95%18.70%--
B 82.428699JHMT37223450JHMTJohn Hancock Multifactor Technology ETF6.62%9.98%9.56%39.85%------
B 51.805747PTF145143900PTFPowerShares DWA Technology Momentum Portfolio5.72%4.66%8.42%29.57%6.59%10.22%4.92%
B 48.889852XITK15954932XITKSPDR FactSet Innovative Technology ETF5.10%3.19%8.27%34.04%------
N/A 0TCHF3322080TCHFiShares Edge MSCI Multifactor Technology ETF7.20%10.55%10.08%--------
N/A 0XK1614932.298XKElkhorn S&P MidCap Information Technology Portfolio5.35%------------
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 02/24/17)

All Funds (14)

99
99.110908
99
98.523418
98
98.46808
96
96.111715
93
92.843358
92
91.942971
91
91.445337
88
87.94776
88
87.930731
88
87.689037
87
86.572146
84
84.143561
N/A
0
N/A
0

ETF.com Grade as 02/16/17

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% -0.10% -0.07% -0.15% 20.00% / 39.60% Low 98.523418
XLK Technology Select Sector SPDR Fund 0.14% -0.17% -0.12% -0.29% 20.00% / 39.60% Low 98.46808
FTEC Fidelity MSCI Information Technology Index ETF 0.08% -0.08% -0.02% -0.22% 20.00% / 39.60% Low 99.110908
XITK SPDR FactSet Innovative Technology ETF 0.45% -- -- -- 20.00% / 39.60% Medium 86.572146
FXL First Trust Technology AlphaDEX Fund 0.63% -0.58% -0.28% -0.83% 20.00% / 39.60% Low 87.930731
TCHF iShares Edge MSCI Multifactor Technology ETF 0.35% -- -- -- 20.00% / 39.60% High 0
IYW iShares U.S. Technology ETF 0.44% -0.52% -0.38% -0.68% 20.00% / 39.60% Low 91.942971
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 84.143561
MTK SPDR Morgan Stanley Technology ETF 0.35% 0.98% 1.23% 0.89% 20.00% / 39.60% Low 91.445337
PSCT PowerShares S&P SmallCap Information Technology Portfolio 0.29% -0.34% -0.26% -0.46% 20.00% / 39.60% Low 96.111715
PTF PowerShares DWA Technology Momentum Portfolio 0.60% -0.84% -0.70% -1.00% 20.00% / 39.60% Low 87.689037
QTEC First Trust NASDAQ-100 Technology Sector Index Fund 0.60% -0.80% -0.53% -1.14% 20.00% / 39.60% Low 87.94776
RYT Guggenheim S&P 500 Equal Weight Technology ETF 0.40% -0.51% -0.38% -0.70% 20.00% / 39.60% Low 92.843358

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 02/24/17)

All Funds (14)

99
99.457742
99
99.300576
99
98.924285
98
98.439247
98
98.185187
98
97.76397
98
97.541248
89
88.805918
86
86.03111
73
73.455351
68
68.39267
62
62.29973
N/A
0
N/A
0

ETF.com Grade as 02/16/17

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
FTEC Fidelity MSCI Information Technology Index ETF $6.98 M 0.06% 3.51 100.00% 0.01% 0.06% None 97.541248
FXL First Trust Technology AlphaDEX Fund $4.25 M 0.04% 2.12 100.00% 0.06% 0.02% None 98.185187
IYW iShares U.S. Technology ETF $18.15 M 0.03% 2.96 100.00% 0.03% 0.01% None 99.300576
JHMT John Hancock Multifactor Technology ETF $100.89 K 0.14% 0.06 100.00% 0.01% 0.03% None 68.39267
MTK SPDR Morgan Stanley Technology ETF $1.39 M 0.36% 0.42 100.00% 0.05% 0.01% None 86.03111
PSCT PowerShares S&P SmallCap Information Technology Portfolio $3.55 M 0.15% 0.99 100.00% 0.58% 0.01% None 88.805918
PTF PowerShares DWA Technology Momentum Portfolio $397.08 K 0.17% 0.19 100.00% 0.12% 0.02% None 73.455351
QTEC First Trust NASDAQ-100 Technology Sector Index Fund $8.85 M 0.04% 3.27 100.00% 0.04% 0.02% None 98.439247
RYT Guggenheim S&P 500 Equal Weight Technology ETF $7.12 M 0.06% 1.21 100.00% 0.07% 0.01% None 97.76397
VGT Vanguard Information Technology Index Fund $49.43 M 0.03% 15.49 100.00% 0.01% 0.03% None 98.924285
XLK Technology Select Sector SPDR Fund $346.13 M 0.02% 136.42 100.00% 0.01% 0.02% None 99.457742
XITK SPDR FactSet Innovative Technology ETF $129.11 K 0.34% 0.04 100.00% 0.21% 0.01% None 62.29973
TCHF iShares Edge MSCI Multifactor Technology ETF $23.44 K 0.24% 0.01 100.00% 0.03% 0.01% None 0
XK Elkhorn S&P MidCap Information Technology Portfolio $1.56 K 0.40% 0.00 100.00% 0.04% 0.06% 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 02/24/17)

All Funds (14)

98
97.709258
93
93.416921
93
93.388399
88
88.224677
82
82.428699
72
72.200212
69
69.242558
62
62.014013
60
60.474168
52
51.805747
49
48.889852
40
39.815614
N/A
0
N/A
0

ETF.com Grade as 02/16/17

Equity: U.S. Technology