ETFs
3 technology ETFs for exposure to the technology sector
Despite challenges such as a decline in global technology spending and an increase in layoffs over the past year, the technology sector is showing promising signs of recovery. Economists have lowered their recession forecasts and analysts are optimistic about the technology sector’s potential for modest growth this year.
Given this positive sentiment, investing in technology ETFs like the First Trust Nasdaq Semiconductor ETF (FTXL), ETF GlobalAIQ) and the iShares Exponential Technologies ETF (XT) could be wise choices for those looking to gain exposure to the technology sector.
With increased spending on software and IT services, there is a renewed emphasis on innovation and growth. According to a Deloitte investigation of 122 technology executives, 55% believe the technology sector is healthy or very healthy, and 62% expect this trend to continue over the next six months.
The survey highlighted efficiency, innovation and productivity as key focus areas, with artificial intelligence (AI), cloud computing, cybersecurity, advanced connectivity and generative AI being the drivers growth of the sector.
Additionally, the growing adoption of AI is fueling investments in cloud infrastructure, connectivity and modernization, indicating an evolving and innovative technology landscape. Nearly two-thirds of technology leaders believe now is the time for their companies to take more risks.
Gartner research supports this optimism, forecasting an 8% year-over-year increase in global IT spending in 2024, reaching $5.06 trillion. Software and IT services are expected to contribute about half of this spending increase, driven by significant investments in cybersecurity as AI adoption increases security concerns.
Exchange traded funds (ETFs) offer a strategic way to invest, offering a diversified portfolio that reduces risk while capturing broad market opportunities. Rather than being tied to the performance of individual stocks, ETFs allow investors to benefit from the collective growth of multiple companies in the technology sector.
According to a report by The Business Research Company, the global information technology market is expected to reach $12.42 trillion by 2028, growing to $1 trillion. CAGR of 8.3%.
With that in mind, let’s take a look at the fundamentals of the top three Tech Stock ETFsstarting with number 3.
ETF #3: First Trust Nasdaq Semiconductor ETF (FTXL)
FTXL seeks to track the performance of the Nasdaq US Smart Semiconductor Index. Managed by First Trust Advisors LP, the fund invests in companies in the information technology, semiconductor and semiconductor equipment industries. It includes a mix of value, growth and volatile stocks from companies of various market capitalizations.
The fund has $1.49 billion in assets under management (AUM). It is main titles are NVIDIA Corporation (NVDA), with a weighting of 11.17%, QUALCOMM Incorporated (QCOM), at 9.69%, and Applied Materials, Inc. (AMAT) and Broadcom Inc. (AVGO), at 8% and 7.84% respectively. The fund has a total of 32 securities.
FTXL has an expense ratio of 0.60%, compared to the category average of 0.58%. Its cash inflows stood at $15.95 million over the past three months and $72.56 million over the past six months. Furthermore, its beta is 1.58, which indicates high volatility compared to the market as a whole.
The fund pays an annual dividend of $0.48, which translates to a yield of 0.50% at the current price level. Its dividend payouts have grown at a CAGR of 26.5% over the past three years. The fund’s average return over four years is 0.56%.
Over the past year, FTXL has gained 44.5% to close the last trading session at $96.09. It has also gained 8.3% over the past month. The ETF had a NAV of $96.14 to June 6, 2024.
FTXL POWR Ratings reflect these promising prospects. The ETF’s overall A rating equates to a Strong Buy in our proprietary rating system. POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
FTXL has an A rating for Trade, Buy & Hold and a B for Peer. Among the 119 B-rated ETFs Tech Stock ETFs group, he is ranked No. 16. To access all of FTXL’s POWR ratings, Click here.
ETF #2: Global X ETF on artificial intelligence and technology (AIQ)
AIQ, managed by Global X Management Company LLC, focuses on investing in companies developing and using artificial intelligence technology and those providing hardware for big data analysis. This includes companies in the AI software, system software, and IT industries. After taking into account fees and expenses, the fund aims to reflect the price and yield performance of the Indxx Artificial Intelligence & Big Data Index.
The fund has a total of 85 securities. It is main titles include NVDA with a weighting of 5.52%, Tencent Holdings Ltd. at 4%, followed by QCOM and Netflix, Inc. (NFLX) with respective weightings of 3.77% and 3.63%.
AIQ’s 12-month dividend of $0.05 yields 0.14% from the current price level, while its four-year average yield is 0.34%.
The fund has an expense ratio of 0.68% compared to the category average of 0.37%. Over the past six months, AIQ’s cash inflows amounted to $949.38 million, and $1.43 billion over the past year. Additionally, the ETF has a beta of 1.25.
AIQ has gained 28.3% over the past year and 17.3% over the past six months to close the latest trading session at $34.46. As of June 6, 2024, AIQ had assets under management of $1.87 billion and a NAV of $34.36.
AIQ’s POWR Ratings reflect a strong outlook. It has an overall grade of A, which equates to a Strong Buy in our proprietary rating system.
AIQ has an A rating for Trading and Buy and Hold. Among the 119 ETFs in the Technology Stock ETF group, it is ranked 14th.
Beyond what we’ve stated above, we’ve also given AIQ a Peer rating. Get all AIQ scores here.
ETF #1: iShares Exponential Technologies ETF (XT)
BlackRock Fund Advisors manages XT. The fund invests globally in public equity markets and targets companies in the information technology sector, including growth and value stocks of various market capitalizations. It seeks to track the performance of the Morningstar Exponential Technologies Index, which measures the performance of equity securities issued by companies involved in breakthrough technologies.
With $3.36 billion in assets under management, its main titles are NVDA with a 1.22% weighting in the fund, followed by First Solar, Inc. (FSLR), Coinbase Global, Inc. (PIECE OF MONEY), and Moderna, Inc. (mRNA) at 0.87% by weight each, respectively. The ETF has a total of 201 securities.
The ETF’s expense ratio is 0.46%, higher than the category average of 0.37%. XT outflows totaled $8.73 million over the past five days.
The fund pays an annual dividend of $0.25, which translates to a yield of 0.42% at the current price level. Its average return over four years is 0.80%.
XT has gained 6.3% over the past nine months and 8% over the past year to close the latest trading session at $59.19. It has a five-year beta of 1.21. The net asset value of the fund was $59.22 as of June 6, 2024.
XT’s strong fundamentals are reflected in its POWR Ratings. The fund has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The fund has an A rating for trading and buy-and-hold. XT is ranked #11 among 119 ETFs in the same B-rated group. Click here to access all XT notes.
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XT shares were unchanged in premarket trading Friday. Year to date, XT is down 1.14%, compared to a 12.84% rise in the benchmark S&P 500 during the same period.
About the Author: Shweta Kumari
Shweta’s deep interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make informed investment decisions. More…