Equity: U.S. Technology

XK Top Performer Intra-day
Price $17.50
Today’s Change +0.24%(1.38)
9:35am 07/20/2017
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 07/20/17)

All Funds (15)

FTEC $1.01 B 1007241750 Lowest fee in segment

A 94
E
100
100
T
98
98
F
94
94

VGT $13.92 B 13921272922.07 Most comprehensive.

A 94
E
98
98
T
99
99
F
94
94

IYW $3.61 B 3610907015 Broad, but expensive.

A 93
E
92
92
T
99
99
F
93
93

XLK $16.93 B 16927162476.383 Highest Liquidity

A 83
E
98
98
T
99
99
F
83
83

MTK $748.45 M 748454421.19169 Only holds electronics

A 77
E
92
92
T
95
95
F
77
77

RYT $1.38 B 1381741800 Equal-weighted large caps.

A 72
E
92
92
T
98
98
F
72
72

FXL $616.14 M 616138615 Quant model.

A 66
E
88
88
T
98
98
F
66
66

QTEC $2.12 B 2117760881.334 Equal-weighted large caps.

A 62
E
88
88
T
98
98
F
62
62

PSCT $547.8 M 547800500 Small caps only.

A 42
E
96
96
T
83
83
F
42
42

JHMT $48.21 M 48206990 broad-based tech

B 85
E
84
84
T
70
70
F
85
85

PTF $122.08 M 122080000 Technical analysis

B 43
E
89
89
T
75
75
F
43
43

TCHF $3.6 M 3596500 N/A

C 84
E
83
83
T
64
64
F
84
84

XITK $7.27 M 7269457.1 N/A

C 51
E
85
85
T
63
63
F
51
51

XK $857.63 K 857634.304 N/A

F 48
E
50
50
T
38
38
F
48
48

FNG $6.78 M 6781125 N/A

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

ETF.com Grade as 07/13/17

Equity: U.S. Technology

Performance Dispersion
Performance  [as of 07/19/17] 1 Month 3 Month YTD 1 Year 3 Years 5 Years 10 Years
Benchmark: Thomson Reuters US Technology3.33%11.40%23.69%35.65%15.85%17.70%--
A 94.078581FTEC1007241750FTECFidelity MSCI Information Technology Index ETF3.11%11.08%22.73%34.25%16.40%----
A 94.034662VGT13921272922.07VGTVanguard Information Technology ETF3.10%10.98%22.87%34.15%16.34%18.07%10.42%
A 93.083297IYW3610907015IYWiShares U.S. Technology ETF3.07%10.62%23.16%35.06%15.47%16.88%9.84%
A 82.732721XLK16927162476.383XLKTechnology Select Sector SPDR Fund2.41%9.19%19.67%29.11%15.39%16.74%9.66%
A 76.76194MTK748454421.19169MTKSPDR Morgan Stanley Technology ETF3.70%12.47%27.30%40.22%17.69%20.19%9.68%
A 71.555823RYT1381741800RYTGuggenheim S&P 500 Equal Weight Technology ETF3.04%9.74%21.49%34.50%17.19%21.91%9.64%
A 65.669434FXL616138615FXLFirst Trust Technology AlphaDEX Fund2.89%10.46%21.63%35.11%13.09%18.05%8.06%
A 62.173571QTEC2117760881.334QTECFirst Trust NASDAQ-100 Technology Sector Index Fund2.50%11.06%26.08%46.57%19.40%23.25%11.64%
A 41.845854PSCT547800500PSCTPowerShares S&P SmallCap Information Technology Portfolio4.60%10.47%12.52%35.92%20.26%22.63%--
B 84.891044JHMT48206990JHMTJohn Hancock Multifactor Technology ETF2.96%10.07%21.95%34.10%------
B 43.334472PTF122080000PTFPowerShares DWA Technology Momentum Portfolio4.53%13.03%23.75%26.25%11.88%14.48%5.37%
C 84.095521TCHF3596500TCHFiShares Edge MSCI Multifactor Technology ETF2.89%9.08%20.65%35.31%------
C 51.035613XITK7269457.1XITKSPDR FactSet Innovative Technology ETF4.87%14.78%25.25%28.65%------
F 48.250172XK857634.304XKElkhorn S&P MidCap Information Technology Portfolio0.95%8.50%----------
N/A 0FNG6781125FNGAdvisorShares New Tech and Media ETF--------------
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 07/20/17)

All Funds (15)

98
98.498662
98
98.006336
96
95.952781
92
91.991772
92
91.912127
92
91.502305
89
88.798044
88
88.189163
88
88.008278
85
85.03162
84
83.669663
83
83.29111
50
50.139984
100
100
N/A
0

ETF.com Grade as 07/13/17

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
FTEC Fidelity MSCI Information Technology Index ETF 0.08% -0.13% -0.06% -0.22% 20.00% / 39.60% Low 100
XITK SPDR FactSet Innovative Technology ETF 0.45% -0.58% -0.45% -2.50% 20.00% / 39.60% High 85.03162
FXL First Trust Technology AlphaDEX Fund 0.63% -0.38% -0.28% -0.83% 20.00% / 39.60% Low 88.008278
TCHF iShares Edge MSCI Multifactor Technology ETF 0.35% -- -- -- 20.00% / 39.60% High 83.29111
IYW iShares U.S. Technology ETF 0.44% -0.59% -0.46% -0.68% 20.00% / 39.60% Low 91.991772
XK Elkhorn S&P MidCap Information Technology Portfolio 0.29% -- -- -- 20.00% / 39.60% High 50.139984
JHMT John Hancock Multifactor Technology ETF 0.50% -- -- -- 20.00% / 39.60% Low 83.669663
FNG AdvisorShares New Tech and Media ETF 0.85% -- -- -- 20.00% / 39.60% Low 0
MTK SPDR Morgan Stanley Technology ETF 0.35% 1.06% 1.23% 0.92% 20.00% / 39.60% Low 91.502305
PSCT PowerShares S&P SmallCap Information Technology Portfolio 0.29% -0.38% -0.31% -0.46% 20.00% / 39.60% Low 95.952781
PTF PowerShares DWA Technology Momentum Portfolio 0.60% -0.84% -0.70% -1.00% 20.00% / 39.60% Low 88.798044
QTEC First Trust NASDAQ-100 Technology Sector Index Fund 0.60% -0.96% -0.71% -1.14% 20.00% / 39.60% Low 88.189163
RYT Guggenheim S&P 500 Equal Weight Technology ETF 0.40% -0.58% -0.48% -0.70% 20.00% / 39.60% Low 91.912127
VGT Vanguard Information Technology ETF 0.10% -0.12% -0.08% -0.15% 20.00% / 39.60% Low 98.498662
XLK Technology Select Sector SPDR Fund 0.14% -0.24% -0.15% -0.30% 20.00% / 39.60% Low 98.006336

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 07/20/17)

All Funds (15)

99
99.486356
99
99.153584
99
98.836591
98
98.35292
98
98.020453
98
97.963745
98
97.710907
95
95.457179
83
82.568457
75
74.849742
70
69.56613
64
64.179646
63
62.615262
38
38.149927
N/A
0

ETF.com Grade as 07/13/17

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 $8.65 M 0.05% 3.98 100.00% 0.01% 0.05% None 98.020453
FXL First Trust Technology AlphaDEX Fund $3.16 M 0.05% 1.42 100.00% 0.05% 0.02% None 97.963745
IYW iShares U.S. Technology ETF $23.91 M 0.03% 3.33 100.00% 0.03% 0.00% None 99.153584
JHMT John Hancock Multifactor Technology ETF $168.79 K 0.17% 0.09 100.00% 0.01% 0.03% None 69.56613
MTK SPDR Morgan Stanley Technology ETF $1.57 M 0.12% 0.85 100.00% 0.05% 0.03% None 95.457179
PSCT PowerShares S&P SmallCap Information Technology Portfolio $1.68 M 0.24% 0.44 100.00% 0.61% 0.01% None 82.568457
PTF PowerShares DWA Technology Momentum Portfolio $432.41 K 0.17% 0.18 100.00% 0.14% 0.02% None 74.849742
QTEC First Trust NASDAQ-100 Technology Sector Index Fund $13.21 M 0.05% 4.11 100.00% 0.04% 0.02% None 98.35292
RYT Guggenheim S&P 500 Equal Weight Technology ETF $6.01 M 0.04% 0.93 98.00% 0.07% 0.01% None 97.710907
VGT Vanguard Information Technology ETF $60.53 M 0.03% 16.80 100.00% 0.01% 0.03% None 98.836591
XLK Technology Select Sector SPDR Fund $555.32 M 0.02% 196.11 100.00% 0.01% 0.02% None 99.486356
XITK SPDR FactSet Innovative Technology ETF $82.9 K 0.15% 0.02 100.00% 0.19% 0.01% None 62.615262
TCHF iShares Edge MSCI Multifactor Technology ETF $32.04 K 0.23% 0.02 99.00% 0.03% 0.01% None 64.179646
XK Elkhorn S&P MidCap Information Technology Portfolio $0 1.33% 0.00 99.00% 0.05% 0.06% None 38.149927
FNG AdvisorShares New Tech and Media ETF $2.02 M 0.19% 4.88 -- -- 0.10% 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
FNG
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 07/20/17)

All Funds (15)

94
94.078581
94
94.034662
93
93.083297
85
84.891044
84
84.095521
83
82.732721
77
76.76194
72
71.555823
66
65.669434
62
62.173571
51
51.035613
48
48.250172
43
43.334472
42
41.845854
N/A
0

ETF.com Grade as 07/13/17

Equity: U.S. Technology