There has seldom been as much divergence in the technology space as there has been this year.
On the one hand, broad-based tech ETFs, which are heavily weighted toward behemoths like Apple and Microsoft, have performed phenomenally—beating the S&P 500, which itself is up 25.5% year-to-date.
For instance, the iShares U.S. Technology ETF (IYW), which has nearly half its portfolio in just three stocks (Apple, Microsoft and Alphabet), is up 29.8% year-to-date.
On the other hand, narrower tech ETFs, which tend to own stocks of smaller, but faster-growing tech companies, are lagging significantly amid an interest-rate-driven sell-off in high valuation stocks.
Case in point, the ARK Next Generation Internet ETF (ARKW) is down 15.5%. The fund’s top two holdings—Tesla and the Grayscale Bitcoin Trust (GBTC)—have done well this year, but outside of those, everything from Coinbase to Roku to Zoom to Teladoc has been pummeled.
One divergence in tech this year has been the outperformance in megacaps—the multihundred-billion dollar giants that most people know about—and the underperformance in the smaller stocks in the industry.
Another has been the outperformance in hardware and the underperformance in software. Many of the best-performing tech ETFs this year target semiconductor stocks. The iShares Semiconductor ETF (SOXX), the Invesco Dynamic Semiconductors ETF (PSI) and the VanEck Semiconductor ETF (SMH) are each up more than 34% year-to-date. In fact, they’re the top-performing funds in this survey of the space.
That said, chipmakers like Nvidia and Advanced Micro Devices, which are both in the top holdings of the three high-flying semiconductor ETFs, have benefited from secular trends in cloud computing, artificial intelligence and gaming.
(Use our stock finder tool to find an ETF’s allocation to a certain stock.)
Of course, software companies are benefiting from many of these same trends. But software stocks did better than hardware stocks last year, so a bit of a reversal isn’t unusual. Additionally, semis are in a particularly good spot this year with all of the supply chain woes that have affected the global economy.
China Tech Stocks Lag
Sticking with the tech divergence theme, there’s been a sharp contrast in the returns for U.S. tech stocks versus Chinese tech stocks.
Broad-based U.S. tech ETFs, like the aforementioned IYW, are up nicely this year. But the equivalent Chinese ETF, such as the Global X MSCI China Information Technology ETF (CHIK), is down a whopping 20.6% year-to-date.
The KraneShares CSI China Internet ETF (KWEB) has been even worse, losing 51.3% of its value this year.
The Chinese government has been cracking down on its technology firms all year long. Its actions have all but wiped out the for-profit education industry in the country, and drastically reined in the powers of the country’s tech giants like Alibaba, Tencent and Didi Chuxing.
So far, there’s no end in sight to the government’s crackdown, so confidence in Chinese tech stocks remains mired at rock-bottom levels.
For a full list of this year’s best- and worst performing tech ETFs, see the tables below:
Best-Performing Tech ETFs (ex. leveraged)
|SOXX||iShares Semiconductor ETF||35.91%|
|PSI||Invesco Dynamic Semiconductors ETF||35.49%|
|SMH||VanEck Semiconductor ETF||34.18%|
|IGN||iShares North American Tech-Multimedia Networking ETF||33.33%|
|XSD||SPDR S&P Semiconductor ETF||33.25%|
|IYW||iShares US Technology ETF||29.80%|
|VCLO||Simplify Volt Cloud & Cybersecurity Disruption ETF||28.97%|
|XLK||Technology Select Sector SPDR Fund||28.31%|
|QTUM||Defiance Quantum ETF||28.20%|
|FTXL||First Trust Nasdaq Semiconductor ETF||27.89%|
|JHMT||John Hancock Multi-Factor Technology ETF||25.07%|
|IETC||iShares Evolved US Technology ETF||24.65%|
|TDIV||First Trust NASDAQ Technology Dividend Index Fund||24.61%|
|VGT||Vanguard Information Technology ETF||24.39%|
|FTEC||Fidelity MSCI Information Technology Index ETF||24.34%|
Worst-Performing Tech ETFs (ex. leveraged)
|KWEB||KraneShares CSI China Internet ETF||-51.28%|
|EMQQ||Emerging Markets Internet and Ecommerce ETF||-35.62%|
|KEMQ||KraneShares Emerging Markets Consumer Technology Index ETF||-29.75%|
|CQQQ||Invesco China Technology ETF||-27.78%|
|CTEC||Global X CleanTech ETF||-25.71%|
|FDNI||First Trust Dow Jones International Internet ETF||-24.40%|
|CHIK||Global X MSCI China Information Technology ETF||-20.62%|
|IPAY||ETFMG Prime Mobile Payments ETF||-17.50%|
|ARKW||ARK Next Generation Internet ETF||-15.45%|
|PSJ||Invesco Dynamic Software ETF||-14.58%|
|XITK||SPDR FactSet Innovative Technology ETF||-13.83%|
|FINX||Global X FinTech ETF||-13.74%|
|ITEQ||BlueStar Israel Technology ETF||-12.42%|
|XWEB||SPDR S&P Internet ETF||-9.39%|
|PNQI||Invesco Nasdaq Internet ETF||-8.88%|
Data measures total returns for the year-to-date period through Dec. 20, 2021.
Follow Sumit Roy on Twitter @sumitroy2