Top Tech ETFs Of 2016

August 05, 2016

Technology stocks are dominating the market. Earlier this week, Facebook clawed its way past oil giant Exxon Mobil to briefly become the fourth-largest U.S. company by market cap. Meanwhile, Amazon―a company some consider tech and others consumer discretionary―also momentarily eclipsed Exxon.

With Apple, Google and Microsoft firmly holding on to the top three spots, that means for a short period of time five of the United States' largest companies were in the technology sector. According to the Wall Street Journal, that's an unprecedented feat.

The tech sector now has a weighting of 20.7% in the S&P 500, well ahead of financials and health care, which represent just north of 15% of the index. This is the largest share of the market that tech has accounted for since the bursting of the dot-com bubble in the year 2000 (at that time, the sector peaked at a weighting of more than 35% of the S&P 500).

S&P 500 Sector Weightings

 

Incidentally, Amazon isn't considered a tech company within the S&P 500, but rather a consumer discretionary company. But some other indexes do consider the internet retailer to be a part of the tech industry.

Likewise, some technology ETFs don't hold the firm, while others do. Indeed, tech is an area where there's a lot of differentiation among the various exchange-traded products. Here we take a look at some of the best-performing ETFs in the sector this year and the differences between them.

Broad Tech ETFs

According to the ETF.com technology channel, there are currently 59 tech ETFs on the market, with $37.3 billion in total assets. That includes the largest of the bunch, the $12.3 billion Technology Select Sector SPDR Fund (XLK | A-92), which is up 9.3% year-to-date.

XLK offers broad, large-cap exposure to the sector by holding all the tech stocks in the S&P 500. XLK also blends the telecom sector within its portfolio, so there's a notable weighting in stocks like AT&T and Verizon within the fund.

XLK is the only traditional, large-cap tech ETF to make the top 10 performers list. The PowerShares S&P SmallCap Information Technology ETF (PSCT | A-40) and the First Trust Nasdaq-100 Technology Sector Index Fund (QTEC | B-68) also made the list and offer broad exposure, but are a bit different.

Up 12.4% on the year, PSCT targets the small-cap tech space by pulling its holdings from the S&P SmallCap 600. On the other hand, QTEC, which is up 9.7% on the year, tracks an equal-weighted index of the 100 largest tech stocks listed on the Nasdaq exchange.

YTD Returns For XLK, PSCT, QTEC

 

Semiconductors Leading The Pack

Aside from the three aforementioned broad tech ETFs, the other seven top performers are more niche funds focused on a subset of the space.

For example, four of the top six tech ETFs this year are products focused on the semiconductor industry. At the top of that heap is the VanEck Vectors Semiconductors ETF (SMH | A-71), which is the best-performing nonleveraged/noninverse tech ETF of 2016 so far, with a gain of 18.2%.

SMH tracks a market-cap-weighted index of the 25 largest U.S.-listed semiconductor stocks. Its portfolio is dominated by chipmakers such as Intel, Taiwan Semiconductor and Qualcomm. Altogether, the top five holdings make up more than 43% of the fund.

Meanwhile, the PowerShares Dynamic Semiconductors Portfolio (PSI | B-74), the iShares PHLX Semiconductor ETF (SOXX | A-87), and the SPDR S&P Semiconductor ETF (XSD | A-68) are a trio of semiconductor ETFs that have also performed well this year, with gains of 12% to 17%.

PSI uses a proprietary model to select and weight its holdings; SOXX tracks a market-cap-weighted basket of U.S.-listed firms, but caps individual weightings at 8%; and XSD uses an equal-weighted approach to get exposure to the industry.

YTD Returns For SMH, PSI, SOXX, XSD

 

High Yield In Tech

Tech has long been known as being filled with growth companies that offered little in the way of dividends, but that's changed in a big way in recent years. Many of the old-guard tech companies now have hefty dividend payments, which the First Trust Nasdaq Technology Dividend Index Fund (TDIV | A-67) attempts to capitalize on.

The fund is up 14.5% this year by holding tech and telecom firms weighted by the amount of dividends they've paid in the past 12 months. Top holdings include Microsoft, Intel and IBM.

The result is an ETF that yields just under 3%, more than a percentage point more than the broader sector.

Social Media & Software

The Global X Social Media Index ETF (SOCL | B-44) and the PowerShares Dynamic Software Portfolio (PSJ | B-35) are another pair of subsector ETFs that have performed well in 2016.

SOCL, up 11.5% year-to-date, is the only product on the market to target social media companies. Top holdings include LinkedIn, Facebook and China's Tencent. It holds a global portfolio, but caps the weight of any individual name in the fund at 10%.

Meanwhile, PSJ uses a quant-driven model to choose software-focused tech companies to hold. The ETF is up 10.8% in 2016 so far thanks to top holdings such as Activision Blizzard, Citrix Systems and Salesforce.

YTD Returns For TDIV, SOCL, PSJ

 

Top 10 Nonleveraged/Inverse Tech ETFs Of 2016

Ticker Fund YTD Return (%)
SMH  VanEck Vectors Semiconductor ETF 18.24
PSI  PowerShares Dynamic Semiconductors Portfolio 16.90
SOXX  iShares PHLX Semiconductor ETF 14.93
TDIV  First Trust NASDAQ Technology Dividend Index Fund 14.49
PSCT  PowerShares S&P SmallCap Information Technology Portfolio 12.37
XSD  SPDR S&P Semiconductor ETF 12.11
SOCL  Global X Social Media Index ETF 11.47
PSJ  PowerShares Dynamic Software Portfolio 10.76
QTEC First Trust NASDAQ-100 Technology Sector Index Fund 9.73
XLK  Technology Select Sector SPDR Fund 9.30

 

Plenty More Tech ETFs

Up to this point, the ETFs mentioned in this article represent only a fraction of the nearly five dozen tech ETFs available to trade. The others haven't performed as well this year, but they could in the future.

From the ROBO Global Robotics and Automation Index ETF (ROBO | F-27) to the First Trust ISE Cloud Computing Index Fund (SKYY | B-68) to the ARK Industrial Innovation ETF (ARKQ | C-41) to the iShares Exponential Technologies ETF (XT | D-57), there's plenty of products that hope to outperform by investing in tech themes or making targeted bets within the tech sector.

There's also broad tech ETFs that do include Amazon, such as the iShares North American Tech ETF (IGM | A-85), and more focused tech ETFs that also hold the name, such as the First Trust Dow Jones Internet Index Fund (FDN | A-60).

For investors who want to target the tech sector outside the U.S., there's a few ETFs tied to the likes of China, Japan, and Israel. Those include the Guggenheim China Technology ETF (CQQQ | D-42), the KraneShares CSI China Internet ETF (KWEB | B-31), the Global X Nasdaq China Technology ETF (QQQC | D-31), the WisdomTree Japan Hedged Tech Media & Telecom Fund (DXJT | D-61), and the BlueStar TA-BIGITech Israel Technology ETF (ITEQ).

Finally, for investors and traders who want to gear their returns or bet against tech, a number of leveraged and inverse products are available. A few names in the area are the Direxion Daily Technology Bull 3x Shares (TECL) and the Direxion Daily Technology Bear 3x Shares (TECS).
 

Contact Sumit Roy at [email protected].

 

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