Top 10 Largest Technology ETFs: Riding the Tech Wave
What are the largest technology ETFs? Technology companies are dominating thestock market, and of course, the world. With the rise of artificialintelligence, machine learning, and other futuristic technologies, techcompanies are expected to play an even bigger role in our lives. If you arebullish on the tech sector, technology ETFs are one of the simplest andeasiest ways to gain exposure to a broad range of tech companies. Here we takea look at the top 10 largest technology ETFs listed in the US.Technology ETFs invest in the stocks of companies providing technologyhardware, software, and services. They include Apple, Amazon, Facebook,Microsoft, Cisco, Nvidia, and more. Some tech ETFs also have medical devicesstocks in their portfolio.Angelo Giampiccolo/Shutterstock.comThere are more than 80 technology ETFs in the US. When investing in ETFs, youshould look at their assets under management (AUM), trading volumes, andexpense ratios besides the index they track. ETFs with lower AUMs and tradingvolumes tend to have a wider spread, meaning there are huge swings in prices.A higher AUM also minimizes the tracking error. For these reasons, it makessense to invest in one of the largest technology ETFs.An ETF tracks a benchmark index. Instead of outperforming the index, the ETFaims to match its performance. ETFs are listed on a stock exchange and tradelike a regular stock. You can trade shares of an ETF throughout the tradingday. But this ability to buy and sell shares throughout the day could shiftyour focus from long-term investing to short-term gains.
Ranked: The ten largest technology ETFs
These are the top 10 largest ETFs based on their assets under management as ofFebruary 2020. The ranking is based on data from ETFdb.com.
6- Fidelity MSCI Information Technology Index ETF (FTEC), $3.39 billion
At just 0.08%, FTEC has the lowest expense ratio of any ETF on this list. Ittracks the performance of the MSCI USA IMI Information Technology index. Itinvests in the US-based information technology companies. Its largest holdingsare Apple (AAPL), Microsoft (MSFT), Visa (V), and Mastercard (MA). FTEC has atotal of 320 stocks in its portfolio, but the top ten stocks have more than58% weighting.
5- iShares U.S. Technology ETF (IYW), $4.8 billion
Launched in 2000, IYW tracks the performance of the Dow Jones U.S. TechnologyCapped Index. The ETF has $4.8 billion in assets. Its expense ratio is 0.42%.IYW invests primarily in the US technology stocks. Its largest holdings areMicrosoft, Apple, Google, Facebook (FB), and Intel (INTC). The ETF hasdelivered an impressive 18.54% annualized return over the last five years.
3- Vanguard Information Technology ETF (VGT), $26.3 billion
Just like most other Vanguard funds, VGT has a pretty low expense ratio ofjust 0.10%. It tracks the performance of the MSCI US IMI InformationTechnology 25/50 Index. It has invested in more than 300 US technology stocks.VGT’s largest holdings are Apple, Microsoft, Visa, Mastercard, and Intel. Thetop ten holdings have a staggering 57.8% weightage in its portfolio.
2- Technology Select Sector SPDR Fund (XLK), $26.7 billion
XLK is one of the most popular technology ETFs among the American investors.Launched in 1998, the ETF has an expense ratio of just 0.13%. It tracks theperformance of the Technology Select Sector Index, which represents thetechnology and telecom sectors within the S&P 500 index. The ETF gives youexposure to technology hardware, software, communications, semiconductors, andIT services companies.
First Trust NASDAQ Technology Dividend Index Fund (TDIV)
Source: ShutterstockExpense ratio: 0.50%As noted above, Apple recently boosted its dividend. Microsoft has been astout dividend grower in its own right in recent years. In other words, thereare plenty of opportunities for dividend growth investors in the technologysector and the First Trust NASDAQ Technology Dividend Index Fund(NASDAAQ:TDIV) is the tech ETF dedicated to that theme.“Tech giants spent a combined $50 billion on dividends last year. Dividendgrowth was one percentage point higher than the previous year, but smallerthan the acceleration in 2016,” according to Bloomberg.TDIV does not have a dividend growth qualification per say, but the tech ETFrequires components to have a dividend yield of at least 0.50% and to havepaid a dividend over the past year while excluding companies that cut orsuspended payouts. This $999.3 million tech ETF is up nearly 21% year-to-date.
Top-performing tech stock
Did you know about a little-known TSX-listed technology company thatoutperformed the likes of Apple (NASDAQ:AAPL) and Microsoft (TSX:MSFT) overthe past decade? Enghouse Systems (TSX:ENGH) is one of the top-performing techstocks on the TSX Index.A $10,000 investment in the company 10-years ago would be worth approximately$123,000 today. Enghouse’s share price is up by 1,140% over this time frame.Not bad for a little-known technology company.Enghouse’s outperformance should not be surprising. This enterprise managementsoftware company is expected to grow earnings at a 17% clip, which isconsistent with its five-year historical average. In 2020, Enghouse is up by9%, far outperforming the 16% loss posted by the S&P/TSX Composite Index.At 13 years, Enghouse owns the longest dividend growth streak among all toptech stocks. It also sports the highest average dividend growth rate. In 2019,the company raised the dividend by 22%.The payout ratio is only 40%, and combined with expected growth rates,investors can expect double-digit dividend growth for years to come.
A dividend at risk?
Just because a company is an Aristocrat, however, it doesn’t mean the dividendis safe. There have already been several Canadian Dividend Aristocrats toannounce a cut, and more are likely on the way. Tecsys (TSX:TCS) is one toptech stock showing signs of weakness.This supply chain management company has done quite well for investors.Although it’s down 6% year to date, the stock price is up by 97.82% over thepast five years.Unfortunately, the company’s earnings growth has been spotty. In 2018 and2019, earnings growth has been negative, leading to an unsustainable payoutratio. As of writing, the dividend accounts for 153% of earnings.On the bright side, it drops to 75% based on next year’s earnings. Given thatdemand for its supply chain products should be strong in this environment, thecompany should be well positioned to maintain the dividend. Is it the safestof the group? No, but a dividend cut doesn’t appear imminent.
A cheap and reliable income stock
The third and final tech-listed Canadian Dividend Aristocrat is Open Text(TSX:OTEX)(NADAQ:OTEX). This serial acquirer makes a name for itself byscooping up multiple companies a year and seamlessly integrating them into thefold.Open Text’s 1.70% yield is the highest among the top tech stocks. Althoughthis won’t impress those looking for a high yield, it is growing the dividendat a 15% clip.Can it sustain this level of growth moving forward? Absolutely. The payoutratio is only 40% and drops to 23% based on next year’s earnings.One of the most attractive aspects of the company is its current valuation.Trading at only 14 times forward earnings, Open Text has a PE to growth (PEG)ratio of 0.59, which makes it one of the cheapest technology companies on theIndex.Year to date, the company’s stock price has lost approximately 3% of itsvalue. In relation to the S&P Tech Index, which is up by approximately 10%this year, it has underperformed, presenting investors with an opportunity topick up a top tech stock on the cheap.This article represents the opinion of the writer, who may disagree with the“official” recommendation position of a Motley Fool premium service oradvisor. We’re Motley! Questioning an investing thesis — even one of our own —helps us all think critically about investing and make decisions that help usbecome smarter, happier, and richer, so we sometimes publish articles that maynot be in line with recommendations, rankings or other content.Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a memberof The Motley Fool’s board of directors. Fool contributor Mat Litalien ownsshares of OPEN TEXT CORP. David Gardner owns shares of Apple. The Motley Foolowns shares of and recommends Apple, Microsoft, and Tecsys Inc. The MotleyFool recommends Enghouse Systems Ltd., Open Text, and OPEN TEXT CORP andrecommends the following options: long January 2021 $85 calls on Microsoft andshort January 2021 $115 calls on Microsoft.Best ETFs to Invest in Big TechThe earnings parade last week was led by tech giants—Apple (AAPL QuickQuoteAAPL – Free Report) , Microsoft (MSFT Quick QuoteMSFT – Free Report), Amazon (AMZN Quick QuoteAMZN – Free Report) , Alphabet (GOOGL) andFacebook (FB Quick QuoteFB – Free Report) . They all reported record revenuegrowth and crushed estimates. While all these companies benefitted from thepandemic driven trends, some of those trends may become permanent.Combined market capitalization for the five tech giants now exceeds $8trillion, and accounts for about a quarter of the total S&P 500capitalization, almost double the percentage five years ago, per WSJ. Digitaladoption is expected to continue to accelerate and drive long-term growth forthese companies.Technology stocks stumbled yesterday, with other growth stocks, as investorsare concerned about the prospect of rising rates. And some investors arerotating into cyclical companies that stand to benefit the most from theeconomic recovery.Tech stocks and ETFs still deserve a place in any long-term focused portfolioas these moneymaking machines would continue to thrive in the coming years.To learn more about the Vanguard Information Technology ETF (VGT QuickQuoteVGT – Free Report) , the most popular and one of the cheapest techETFs, the iShares U.S. Technology ETF (IYW Quick QuoteIYW – Free Report) andthe Invesco Nasdaq 100 ETF (QQQM Quick QuoteQQQM – Free Report) , pleasewatch the short video above.Want key ETF info delivered straight to your inbox?Zacks’ free Fund Newsletter will brief you on top news and analysis, as wellas top-performing ETFs, each week. Get it free >>7 Tech ETFs to Buy and Hold ForeverIt’s tough to find the next Tesla (NASDAQ:TSLA) to invest in. Therefore,putting your money into tech ETFs may be a better option.June 29 marked the ten-year anniversary of CEO Elon Musk taking Tesla public.At the time, TSLA shares were offered at $17 and the valuation was at $1.7billion. And yes, there has been lots of volatility and drama since then.However, if you invested $1,700 for 100 shares of TSLA stock, the holdingwould be worth nearly $140,000 today (more than enough to buy a high-end EVfrom the company!)Then again, picking tech stocks is far from easy and there are many duds, asseen with companies like Nokia (NYSE:NOK) and BlackBerry (NYSE:BB). Therefore,buying tech ETFs is a good alternative.With this approach, you get the benefit of diversification. However, there isalso a good deal of concentration in the tech industry.Besides, there are specialized ETFs that span emerging growth categories likeartificial intelligence (AI) and quantum computers. These industries hold thepromise of significant growth in the years ahead.Now, with all of that in mind, what are some tech ETFS to consider? Well,let’s take a look at seven: * Vanguard Information Technology ETF (NYSEARCA:VGT) * Invesco S&P SmallCap Information Technology ETF (NASDAQ:PSCT) * First Trust Cloud Computing ETF (NASDAQ:SKYY) * First Trust Nasdaq Cybersecurity ETF (NASDAQ:CIBR) * Global X Robotics & Artificial Intelligence ETF (NASDAQ:BOTZ) * Defiance Quantum ETF (NYSEARCA:QTUM) * Renaissance IPO ETF (NYSEARCA:IPO)Let’s dive in.
Tech ETFs to Buy: Vanguard Information Technology ETF (VGT)
Source: ShutterstockVanguard’s Information Technology ETF, which has $36.9 billion in assets undermanagement, provides a way to get a broad exposure to the technology universein the U.S. market. The ETF is based on the MSCI US Investable Market IndexInformation Technology 25/50 index, which has over 330 stocks. The holdingsspan from small to large operators in key areas like software, communicationsequipment, cellular phones, peripherals and semiconductors.However, the index still skews toward large capitalization stocks, with theaverage of $201.8 billion. Some of the top holdings include Apple(NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Visa (NYSE:V), and Mastercard(NYSE:MA).Moreover, a key advantage of this tech ETF is the low-cost structure. Considerthat the expense ratio is only 0.10% for VGT, and also a decent dividend yieldof 1.09%.
Invesco S&P Small-Cap Information Technology ETF (PSCT)
Source: ShutterstockIf you want to get exposure to smaller tech company opportunities, there isthe Invesco S&P SmallCap Information Technology ETF. Yes, the fund is based onthe S&P SmallCap 600 Capped Information Technology Index. And at any giventime, the PSCT fund will invest at least 90% of its assets in this index.Overall, though, it can certainly be volatile. For the year so far, PSCT stockis down 10.4%. However, when it comes to small company tech ETFs, the focusshould be on the long term. For example, the PSCT fund has logged an averageannual return of 14.85% for the past decade.Additionally, the portfolio has an average market cap of about $1.8 billion,and some of the top holdings include AlarmCom (NASDAQ:ALRM), Itron(NASDAQ:ITRI) and LivePerson (NASDAQ:LPSN). In all, the number of positions is75, and none of them represent more than 4.01% of the value of the portfolio.