Top Tech ETFs Of The Year

June 14, 2018

The stock market is on the rise and a familiar group is leading the way. Technology is the top-performing sector this year, just as it was in 2017.

The Technology Select Sector SPDR Fund (XLK) and the Vanguard Information Technology ETF (VGT), the two largest tech-focused ETFs, each with more than $21 billion in assets, are up 13.1% and 15%, respectively, year-to-date.

That compares favorably with the S&P 500, up 5.1% this year, and the broader S&P Total Market Index, up 5.5%.

Tech Is The Dominant Sector

Both XLK and VGT hit record highs this month, more than recovering from the back-to-back corrections in February and March. Tech remains the dominant force in a stock market that has struggled to find other sectors to take the leadership reins.

The only sector that comes even close to matching tech’s performance is consumer discretionary, with a 12.7% year-to-date return. That’s followed by energy, with a 6.9% return. Meanwhile, four sectors are in the red for the year: real estate, telecom, utilities and consumer staples. Another three—industrials, materials and financials—are barely in the green for the year, with gains of 1% or less.

It’s anyone’s guess whether technology will continue to dominate like it has. For investors who think it will, and who are in the market for a tech ETF, there are plenty of options available. According to the ETF.com technology channel, there are 63 tech-focused ETFs listed on U.S. exchanges.

Most of those funds are up big this year, with returns of up to 33% so far in 2018. Here we’ll take a look at some of those top-performing funds.

Internet ETFs Power Higher

Among the stellar performers is a handful of internet ETFs, including the SPDR S&P Internet ETF (XWEB), the First Trust Dow Jones Internet Index Fund (FDN), the Invesco NASDAQ Internet ETF (PNQI) and the ARK Web x.0 ETF (ARKW).

XWEB, with its 33.2% return, takes the mantle of the No. 1 tech ETF of the year. It holds an equal-weighted basket of internet retail, software and services stocks. Pandora, Trade Desk and Twilio are just a few of the fund’s 65 holdings, each with a weighting of about 1-2% of the ETF.

FDN and PNQI are market-cap-weighted funds, making them much more top heavy than XWEB. Internet giants such as Amazon, Facebook, Netflix and Alphabet make up more than a third of those two funds.

Meanwhile, ARKW is unique among the internet ETFs on the list in that it is actively managed. ARKW invests in companies that are "expected to benefit from shifting the bases of technology infrastructure to the cloud." Stocks held include firms tied to cloud computing, cyber security, big data, e-commerce and social media platforms.

The current top holdings are Twitter, Tesla, Amazon, Nvidia and Square.

Niche Tech Funds

Outside of internet ETFs, other tech ETFs doing well this year include the Invesco Dynamic Software ETF (PSJ), the ETMG Prime Cyber Security ETF (HACK) and the Global X FinTech ETF (FINX).

Each of these ETFs hit on a different subgroup within the broader tech sector—software, cybersecurity and financial technology.

PSJ uses a quantitative, multifactor model to pick software stocks. Top holdings include Liberty Broadband, Salesforce and Intuit.

HACK holds a tiered, equal-weighted basket of cybersecurity stocks, which includes Carbonite, Commvault and CyberArk Software.

FINX provides plain, market-cap-weighted exposure to fintech stocks like Wirecard, Square and Temenos.

The GICS Effect

A full list of the top-performing tech ETFs can be found at the bottom of this article. But before we leave you with that, we should point out one important consideration for anyone in the market for a technology ETF.

A few months from now, on Sept. 28, hundreds of stocks will be reclassified under S&P and MSCI’s Global Industry Classification Standard (GICS), many of them moving out of the tech sector and into the new Communication Services sector (formerly the Telecommunications Services sector).

Alphabet, Facebook and Activision Blizzard are just a few of the companies that will be making the switch. The move means many tech ETFs could look and act very differently in a few months.

Case in point: Alphabet and Facebook alone account for more than 16% of the weighting in the aforementioned XLK and VGT. After the GICS changes go into effect, those stocks won’t be in the portfolio of those ETFs anymore.

However, the move won’t impact all tech ETFs. Any fund that doesn’t adhere to GICS, or that doesn’t hold big positions in the companies that are affected by the changes in the standard, will see little to no impact come September.

As always, look under the hood of any ETF before you trade it. ETF.com’s fund report pages are a great resource for that.

 

Top-Performing Tech ETFs Of 2018

Ticker Fund YTD Return (%)
XWEB SPDR S&P Internet ETF 33.22
TECL Direxion Daily Technology Bull 3x Shares 33.03
SOXL Direxion Daily Semiconductor Bull 3x Shares 29.20
XITK SPDR FactSet Innovative Technology ETF 28.84
FDN First Trust Dow Jones Internet Index Fund 27.66
ROM ProShares Ultra Technology 27.25
USD ProShares Ultra Semiconductors 25.61
PSJ Invesco Dynamic Software ETF 24.72
ARKW ARK Web x.0 ETF 23.83
PNQI Invesco NASDAQ Internet ETF 23.58
HACK ETFMG Prime Cyber Security ETF 23.31
IGV iShares North American Tech-Software ETF 22.46
FINX Global X FinTech ETF 21.41
XSW SPDR S&P Software & Services ETF 21.41
PTF Invesco DWA Technology Momentum ETF 21.17

Data measures total return for the year-to-date period through June 12.

 

Email Sumit Roy at [email protected] or follow him on Twitter sumitroy2

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