Equity: U.S. Technology

JHMT Top Performer Intra-day
Price $36.57
Today’s Change +0.36%(0.99)
3:18pm 05/25/2017
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 05/25/17)

All Funds (14)

IYW $3.56 B 3556886970 Broad, but expensive.

A 96
E
92
92
T
99
99
F
96
96

VGT $13.04 B 13042324866.15 Most comprehensive.

A 94
E
98
98
T
99
99
F
94
94

FTEC $933.19 M 933192450 Lowest fee in segment

A 94
E
100
100
T
98
98
F
94
94

XLK $17.75 B 17746219093.596 Highest Liquidity

A 89
E
98
98
T
99
99
F
89
89

MTK $706.01 M 706009214.94211 Only holds electronics

A 77
E
91
91
T
95
95
F
77
77

RYT $1.39 B 1393716000 Equal-weighted large caps.

A 73
E
93
93
T
98
98
F
73
73

FXL $692.26 M 692264100 Quant model.

A 64
E
88
88
T
98
98
F
64
64

QTEC $2.11 B 2107017127.698 Equal-weighted large caps.

A 61
E
88
88
T
99
99
F
61
61

PSCT $530.5 M 530503200 Small caps only.

A 43
E
95
95
T
85
85
F
43
43

TCHF $3.54 M 3536590 N/A

B 85
E
87
87
T
64
64
F
85
85

JHMT $45.04 M 45038500 broad-based tech

B 85
E
85
85
T
68
68
F
85
85

PTF $130.82 M 130821600 Technical analysis

B 48
E
87
87
T
71
71
F
48
48

XITK $6.96 M 6964219.2 N/A

C 51
E
85
85
T
63
63
F
51
51

XK $1.67 M 1672133.442 N/A

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

ETF.com Grade as 05/18/17

Equity: U.S. Technology

Performance Dispersion
Performance  [as of 05/24/17] 1 Month 3 Month YTD 1 Year 3 Years 5 Years 10 Years
Benchmark: Thomson Reuters US Technology5.13%8.18%19.31%36.27%16.99%17.68%--
A 95.858546IYW3556886970IYWiShares U.S. Technology ETF4.87%8.06%19.32%36.37%16.82%16.87%10.51%
A 94.249316VGT13042324866.15VGTVanguard Information Technology ETF4.80%7.77%18.67%34.72%17.37%18.03%11.04%
A 94.158019FTEC933192450FTECFidelity MSCI Information Technology Index ETF4.80%7.83%18.52%34.68%17.42%----
A 88.699347XLK17746219093.596XLKTechnology Select Sector SPDR Fund4.11%6.83%16.26%31.16%16.58%17.10%10.17%
A 77.243281MTK706009214.94211MTKSPDR Morgan Stanley Technology ETF4.59%8.21%20.80%37.87%17.66%19.61%10.12%
A 73.152242RYT1393716000RYTGuggenheim S&P 500 Equal Weight Technology ETF3.34%6.28%16.74%36.21%17.84%21.37%9.91%
A 64.283988FXL692264100FXLFirst Trust Technology AlphaDEX Fund4.56%7.53%17.43%38.10%14.01%17.31%8.55%
A 61.408178QTEC2107017127.698QTECFirst Trust NASDAQ-100 Technology Sector Index Fund5.18%9.61%22.14%49.99%20.86%22.64%12.70%
A 43.254049PSCT530503200PSCTPowerShares S&P SmallCap Information Technology Portfolio1.89%1.04%6.29%34.93%19.95%21.68%--
B 84.733101TCHF3536590TCHFiShares Edge MSCI Multifactor Technology ETF4.10%7.53%17.80%43.16%------
B 84.593018JHMT45038500JHMTJohn Hancock Multifactor Technology ETF4.02%7.10%17.72%38.95%------
B 47.812294PTF130821600PTFPowerShares DWA Technology Momentum Portfolio5.05%7.63%17.84%28.02%12.58%13.79%5.45%
C 51.035613XITK6964219.2XITKSPDR FactSet Innovative Technology ETF7.07%10.43%19.46%32.02%------
N/A 0XK1672133.442XKElkhorn S&P MidCap Information Technology Portfolio2.29%3.96%----------
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 05/25/17)

All Funds (14)

98
98.49597
98
98.444227
95
95.336625
93
92.882954
92
91.964186
91
91.416522
88
88.149999
88
87.900895
87
87.319967
87
86.845745
85
85.265702
85
85.03162
100
100
N/A
0

ETF.com Grade as 05/18/17

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
RYT Guggenheim S&P 500 Equal Weight Technology ETF 0.40% -0.56% -0.42% -0.70% 20.00% / 39.60% Low 92.882954
VGT Vanguard Information Technology ETF 0.10% -0.11% -0.08% -0.15% 20.00% / 39.60% Low 98.49597
XLK Technology Select Sector SPDR Fund 0.14% -0.20% -0.13% -0.30% 20.00% / 39.60% Low 98.444227
FTEC Fidelity MSCI Information Technology Index ETF 0.08% -0.10% -0.03% -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% -0.46% -0.28% -0.83% 20.00% / 39.60% Low 87.900895
TCHF iShares Edge MSCI Multifactor Technology ETF 0.35% -- -- -- 20.00% / 39.60% High 86.845745
IYW iShares U.S. Technology ETF 0.44% -0.57% -0.42% -0.68% 20.00% / 39.60% Low 91.964186
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 85.265702
MTK SPDR Morgan Stanley Technology ETF 0.35% 1.03% 1.23% 0.90% 20.00% / 39.60% Low 91.416522
PSCT PowerShares S&P SmallCap Information Technology Portfolio 0.29% -0.37% -0.27% -0.46% 20.00% / 39.60% Low 95.336625
PTF PowerShares DWA Technology Momentum Portfolio 0.60% -0.84% -0.70% -1.00% 20.00% / 39.60% Low 87.319967
QTEC First Trust NASDAQ-100 Technology Sector Index Fund 0.60% -0.87% -0.63% -1.14% 20.00% / 39.60% Low 88.149999

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 05/25/17)

All Funds (14)

99
99.47724
99
99.377884
99
99.065639
99
98.712202
98
98.211321
98
98.131347
98
97.94109
95
95.359648
85
84.790122
71
71.158229
68
68.342508
64
63.717882
63
62.615262
N/A
0

ETF.com Grade as 05/18/17

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
QTEC First Trust NASDAQ-100 Technology Sector Index Fund $11.78 M 0.03% 3.76 100.00% 0.04% 0.02% None 98.712202
RYT Guggenheim S&P 500 Equal Weight Technology ETF $7.18 M 0.04% 1.21 100.00% 0.07% 0.01% None 98.211321
VGT Vanguard Information Technology ETF $53.78 M 0.03% 15.53 100.00% 0.01% 0.03% None 99.065639
XLK Technology Select Sector SPDR Fund $411.23 M 0.02% 150.35 100.00% 0.01% 0.02% None 99.47724
XITK SPDR FactSet Innovative Technology ETF $306.03 K 0.16% 0.09 100.00% 0.19% 0.01% None 62.615262
TCHF iShares Edge MSCI Multifactor Technology ETF $23.65 K 0.23% 0.01 100.00% 0.03% 0.01% None 63.717882
XK Elkhorn S&P MidCap Information Technology Portfolio $0 0.53% 0.00 100.00% 0.05% 0.06% None 0
FTEC Fidelity MSCI Information Technology Index ETF $7.27 M 0.05% 3.44 100.00% 0.01% 0.06% None 97.94109
FXL First Trust Technology AlphaDEX Fund $4.45 M 0.05% 2.13 100.00% 0.05% 0.02% None 98.131347
IYW iShares U.S. Technology ETF $21.27 M 0.02% 3.00 100.00% 0.03% 0.00% None 99.377884
JHMT John Hancock Multifactor Technology ETF $134.4 K 0.17% 0.08 100.00% 0.01% 0.03% None 68.342508
MTK SPDR Morgan Stanley Technology ETF $1.61 M 0.12% 0.92 100.00% 0.05% 0.03% None 95.359648
PSCT PowerShares S&P SmallCap Information Technology Portfolio $2.1 M 0.21% 0.57 100.00% 0.61% 0.01% None 84.790122
PTF PowerShares DWA Technology Momentum Portfolio $338.76 K 0.20% 0.15 100.00% 0.14% 0.02% None 71.158229

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 05/25/17)

All Funds (14)

96
95.858546
94
94.249316
94
94.158019
89
88.699347
85
84.733101
85
84.593018
77
77.243281
73
73.152242
64
64.283988
61
61.408178
51
51.035613
48
47.812294
43
43.254049
N/A
0

ETF.com Grade as 05/18/17

Equity: U.S. Technology