The Different Flavors Of Surging Tech ETFs

April 25, 2017

QQQ: The classic

As noted earlier, PowerShares QQQ Trust (QQQ) isn’t really a tech ETF. It’s categorized more broadly as a U.S. large-cap fund. But technology represents about 60% of the portfolio. Many investors look at QQQ as a loose proxy for U.S. tech stocks since the fund tracks the Nasdaq 100.

QQQ is hugely popular, with nearly $47 billion in total assets. The fund employs a tiered weighting scheme that leads to concentration in its biggest names, and causes more volatility in returns relative to a traditional market-cap approach.

Apple represents about 12% of the portfolio—the single largest weighting—and about four times the allocation seen in the other ETFs highlighted in this article.

QTEC: The performance leader this year with a Nasdaq focus

The First Trust Nasdaq-100 Technology Sector Index Fund (QTEC) selects its stocks simply: They must be Nasdaq-listed. The fund tracks the Nasdaq 100 Tech Index. It then equal-weights them. The approach translates into two main things. First, the equal weighting dilutes the impact of some of the largest stocks by market capitalization—names like Apple. Secondly, the fund’s focus on the Nasdaq-100 means it’s a tech portfolio that lacks exposure to some big players in this sector—names like HP and IBM.

In other words, QTEC isn’t broadly representative of the U.S. tech sector, but a focused approach to tech stocks. It owns only 35 stocks.

The fund, which came to market in 2006, has a strong following, with nearly $2 billion in assets under management. That following comes despite its slightly higher price tag of 0.60%, or $60 per $10,000 invested, or about three times the cost of QQQ.

MTK: A smart-beta equal-weighted ETF

The SPDR Morgan Stanley Technology ETF (MTK) is a veteran in the space, having come to market in 2000. The fund has $660 million in assets and carries an expense ratio of 0.35%.

The portfolio doesn’t focus exclusively on U.S. companies, but rather on U.S.-listed tech companies, which means it can own international large-cap tech names that have American depositary receipts listed in the U.S. Part of the portfolio is currently tied to Chinese and German firms.

Because it’s equal-weighted, it dilutes the impact some of the segment’s giants can have in a portfolio—names like Apple, for example. In MTK, Apple represents little more than 3% of the overall portfolio. The fund has 35 holdings.

 

Find your next ETF

Reset All