Equity: U.S. Technology

QTEC Top Performer Intra-day
Price $59.62
Today’s Change +0.52%(0.88)
4:00pm 03/22/2017
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 03/22/17)

All Funds (14)

IYW $3.33 B 3326869560 Broad, but expensive.

A 96
E
92
92
T
99
99
F
96
96

VGT $12.05 B 12052500893.3 Most comprehensive.

A 94
E
99
99
T
99
99
F
94
94

FTEC $810.23 M 810231450 Lowest fee in segment

A 94
E
99
99
T
98
98
F
94
94

XLK $17.12 B 17122386293.623 Highest Liquidity

A 89
E
98
98
T
99
99
F
89
89

RYT $1.17 B 1172623300 Equal-weighted large caps.

A 69
E
93
93
T
98
98
F
69
69

FXL $591.97 M 591968490 Quant model.

A 63
E
88
88
T
98
98
F
63
63

QTEC $1.92 B 1922708820.546 Equal-weighted large caps.

A 60
E
88
88
T
99
99
F
60
60

PSCT $557.48 M 557482800 Small caps only.

A 41
E
96
96
T
89
89
F
41
41

JHMT $39.48 M 39481685 broad-based tech

B 82
E
85
85
T
68
68
F
82
82

MTK $653.49 M 653490455.83881 Only holds electronics

B 74
E
91
91
T
85
85
F
74
74

PTF $136.16 M 136161150 Technical analysis

B 49
E
88
88
T
74
74
F
49
49

XITK $6.42 M 6417112.9 N/A

C 51
E
85
85
T
63
63
F
51
51

TCHF $3.37 M 3371620 N/A

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

XK $1.61 M 1610932.218 N/A

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

ETF.com Grade as 03/16/17

Equity: U.S. Technology

Performance Dispersion
Performance  [as of 03/21/17] 1 Month 3 Month YTD 1 Year 3 Years 5 Years 10 Years
Benchmark: Thomson Reuters US Technology0.13%8.42%10.37%25.13%14.60%13.55%--
A 96.466751IYW3326869560IYWiShares U.S. Technology ETF0.20%8.65%10.67%25.42%14.76%12.74%10.11%
A 94.236135VGT12052500893.3VGTVanguard Information Technology Index Fund0.09%8.35%10.11%25.30%14.73%14.08%10.65%
A 94.180242FTEC810231450FTECFidelity MSCI Information Technology Index ETF0.02%8.14%9.86%25.18%14.75%----
A 89.201063XLK17122386293.623XLKTechnology Select Sector SPDR Fund0.67%7.74%9.21%22.38%15.26%13.95%10.05%
A 69.035799RYT1172623300RYTGuggenheim S&P 500 Equal Weight Technology ETF0.13%7.85%9.65%28.84%15.18%16.56%9.74%
A 63.05424FXL591968490FXLFirst Trust Technology AlphaDEX Fund-0.94%7.14%8.92%28.19%10.26%12.43%--
A 60.423847QTEC1922708820.546QTECFirst Trust NASDAQ-100 Technology Sector Index Fund0.34%10.69%12.23%39.22%17.76%16.99%11.89%
A 41.054454PSCT557482800PSCTPowerShares S&P SmallCap Information Technology Portfolio-4.25%1.19%2.56%32.77%15.64%18.23%--
B 82.324025JHMT39481685JHMTJohn Hancock Multifactor Technology ETF-0.27%7.82%9.72%28.25%------
B 73.779903MTK653490455.83881MTKSPDR Morgan Stanley Technology ETF-0.65%9.49%11.15%30.27%14.06%14.86%9.84%
B 49.338752PTF136161150PTFPowerShares DWA Technology Momentum Portfolio-0.77%6.00%9.04%19.48%7.15%9.94%5.11%
C 51.035613XITK6417112.9XITKSPDR FactSet Innovative Technology ETF-1.91%4.74%7.12%21.86%------
N/A 0TCHF3371620TCHFiShares Edge MSCI Multifactor Technology ETF0.94%8.99%10.71%--------
N/A 0XK1610932.218XKElkhorn S&P MidCap Information Technology Portfolio1.97%------------
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 03/22/17)

All Funds (14)

99
99.101681
99
98.511243
98
98.447641
96
96.138741
93
92.888622
92
91.947014
91
91.355698
88
88.018871
88
87.965635
88
87.744296
85
85.03162
85
84.562478
N/A
0
N/A
0

ETF.com Grade as 03/16/17

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% -0.11% -0.08% -0.15% 20.00% / 39.60% Low 98.511243
XLK Technology Select Sector SPDR Fund 0.14% -0.18% -0.13% -0.29% 20.00% / 39.60% Low 98.447641
FTEC Fidelity MSCI Information Technology Index ETF 0.08% -0.09% -0.02% -0.22% 20.00% / 39.60% Low 99.101681
XITK SPDR FactSet Innovative Technology ETF 0.45% -- -- -- 20.00% / 39.60% High 85.03162
FXL First Trust Technology AlphaDEX Fund 0.63% -0.58% -0.28% -0.83% 20.00% / 39.60% Low 87.965635
TCHF iShares Edge MSCI Multifactor Technology ETF 0.35% -- -- -- 20.00% / 39.60% High 0
IYW iShares U.S. Technology ETF 0.44% -0.53% -0.41% -0.68% 20.00% / 39.60% Low 91.947014
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 84.562478
MTK SPDR Morgan Stanley Technology ETF 0.35% 0.99% 1.23% 0.90% 20.00% / 39.60% Low 91.355698
PSCT PowerShares S&P SmallCap Information Technology Portfolio 0.29% -0.34% 3.58% -0.46% 20.00% / 39.60% Low 96.138741
PTF PowerShares DWA Technology Momentum Portfolio 0.60% -0.84% -0.70% -1.00% 20.00% / 39.60% Low 87.744296
QTEC First Trust NASDAQ-100 Technology Sector Index Fund 0.60% -0.82% -0.59% -1.14% 20.00% / 39.60% Low 88.018871
RYT Guggenheim S&P 500 Equal Weight Technology ETF 0.40% -0.52% 0.79% -0.70% 20.00% / 39.60% Low 92.888622

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 03/22/17)

All Funds (14)

99
99.468998
99
99.345769
99
99.078669
99
98.680418
98
98.304993
98
98.013779
98
97.85519
89
89.239798
85
85.299426
74
73.509455
68
68.37661
63
62.615262
N/A
0
N/A
0

ETF.com Grade as 03/16/17

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
IYW iShares U.S. Technology ETF $18.66 M 0.02% 2.91 100.00% 0.03% 0.01% None 99.345769
JHMT John Hancock Multifactor Technology ETF $102.46 K 0.15% 0.06 100.00% 0.01% 0.03% None 68.37661
MTK SPDR Morgan Stanley Technology ETF $1.37 M 0.38% 0.41 100.00% 0.04% 0.01% None 85.299426
PSCT PowerShares S&P SmallCap Information Technology Portfolio $3.57 M 0.16% 0.99 100.00% 0.60% 0.01% None 89.239798
PTF PowerShares DWA Technology Momentum Portfolio $361.61 K 0.17% 0.17 100.00% 0.11% 0.02% None 73.509455
QTEC First Trust NASDAQ-100 Technology Sector Index Fund $9.23 M 0.03% 3.25 100.00% 0.04% 0.02% None 98.680418
RYT Guggenheim S&P 500 Equal Weight Technology ETF $6.43 M 0.05% 1.12 100.00% 0.07% 0.01% None 97.85519
VGT Vanguard Information Technology Index Fund $52.36 M 0.03% 15.67 100.00% 0.01% 0.03% None 99.078669
XLK Technology Select Sector SPDR Fund $368.6 M 0.02% 141.23 100.00% 0.01% 0.02% None 99.468998
XITK SPDR FactSet Innovative Technology ETF $173.93 K 0.34% 0.06 100.00% 0.20% 0.01% None 62.615262
TCHF iShares Edge MSCI Multifactor Technology ETF $19.59 K 0.25% 0.01 100.00% 0.03% 0.01% None 0
XK Elkhorn S&P MidCap Information Technology Portfolio $0 0.40% 0.00 100.00% 0.04% 0.06% None 0
FTEC Fidelity MSCI Information Technology Index ETF $8.32 M 0.04% 4.14 100.00% 0.01% 0.06% None 98.013779
FXL First Trust Technology AlphaDEX Fund $3.8 M 0.04% 1.89 100.00% 0.05% 0.02% None 98.304993

ETF.com/ Block Liquidity

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
FTEC
5
4
3
2
1
FXL
5
4
3
2
1
IYW
5
4
3
2
1
JHMT
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 03/22/17)

All Funds (14)

96
96.466751
94
94.236135
94
94.180242
89
89.201063
82
82.324025
74
73.779903
69
69.035799
63
63.05424
60
60.423847
51
51.035613
49
49.338752
41
41.054454
N/A
0
N/A
0

ETF.com Grade as 03/16/17

Equity: U.S. Technology