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All Contents © 2017The Kiplinger Washington Editors
Investors’ thoughts on the subject of technology-sector exchange-traded funds (ETFs) tend to gravitate toward the biggest players. The Technology Select Sector SPDR Fund (XLK), of course, is the most popular proxy for tech stocks based on its $17 billion market cap, followed not far behind by the Vanguard Information Technology ETF (VGT). And while the PowerShares QQQ Trust (QQQ) doesn’t quite meet the criteria to be included among tech ETFs, given its 60% weight to the sector, it’s often lumped into their ilk.
But technology is an increasingly wider space with a swelling number of upstart industries, which means the broad-based coverage provided by most tech ETFs isn’t necessarily enough — at least if you want to lock in the sector’s most explosive growth.
That’s covered by so-called “thematic” ETFs, which invest in the stocks best suited to profit from various investing mega-trends. Unsurprisingly, a large number of thematic ETFs are dedicated to the tech arena.
Thematic tech ETFs can help you get more acute exposure to things such as fintech, artificial intelligence and e-commerce, among other emerging technology trends. These funds aren’t meant to be “forever” holdings, nor should they take up too much space in your trunk. But they are strategic growth plays that, over the next few years, should help you generate market-beating returns.
Here are three such ETFs that I like right now.
Prices and data are from the original InvestorPlace story published on August 21, 2017. Click on ticker-symbol links in each slide for current prices and more.
By Kyle Woodley
| August 2017
This slide show is from InvestorPlace, not the Kiplinger editorial staff.
Expense ratio: 0.68%, or $68 annually for every $10,000 invested
Robotics and artificial intelligence are two of science fiction’s most captivating topics, and they’re also two of the investment world’s most exciting emerging industries. True, current robotics and artificial intelligence technologies don’t nearly match what writers have dreamt up, but the market growth is real enough.
International Data Corporation, for instance, said last year that worldwide spend on robotics and related services would balloon from 2015’s $71 billion to $135.4 billion by 2019 — a compound annual growth rate of 17%. Artificial intelligence, while not as large on a nominal basis, is expected to blimp by nearly 57% annually to $58.97 billion by 2025, according to Research and Markets.
The Global X Robotics & Artificial Intelligence ETF (BOTZ) is a tight 30-holding portfolio of companies that are expected to benefit from one or both trends. That leads to an industrial-heavy grouping, including 30% exposure to industrial machinery, as well as roughly 11% holdings in both electronic components and electronic equipment and instruments.
BOTZ’s top positions include the likes of Keyence Corp NPV (KYCCF), which develops products such as machine vision systems and fiber optic sensors; Mitsubishi Electric Corporation (MIELY), which is a specialist in manufacturing robots; and Intuitive Surgical, Inc. (ISRG), which is known for its da Vinci robotics-assisted surgical system.
Is BOTZ’s reality a little less flashy than fully sentient robots? Sure. But it’s hard to argue with its market- and sector-crushing returns since inception in 2016.
Expense ratio: 0.65%
Amazon.com, Inc. (AMZN) is given wide credit for the coming death of brick-and-mortar retail, but make no mistake — Amazon is not alone.
E-commerce in general — whether it’s by pure-play e-tailers, or traditional companies focusing more on their online operations — is sucking the wind out of physical locations. Everyone is increasingly adopting online retail, though this trend is really going to flare as millennials age and their spending power blossoms.
The Amplify Online Retail ETF (IBUY) invests in a global basket of companies that “obtain 70% or more of revenue from online or virtual sales” — and the “global” part of that is important, as the U.S. isn’t the only country seeing e-commerce explode. This 40-holding fund tracks a modified equal weight index that means at the moment, no single stock makes up more than 5.5% of the portfolio, cutting down on single-company risk.
While you’re probably familiar with hot runners such as Amazon and PayPal Holdings Inc (PYPL), don’t sleep on Stamps.com Inc (STMP) — which has rocketed 84% higher in 2017 and currently is IBUY’s top holding — as well as internationals such as China’s Alibaba Group Holding Ltd (BABA) and Latin American play Mercadolibre Inc (MELI).
Expense ratio: 0.6%
To be fair, cloud computing is hardly new, and the First Trust Cloud Computing ETF (SKYY) — which came into being in 2011 — isn’t exactly a spring chicken. Still, it would be silly to overlook the cloud, which remains a massive technological growth trend.
Global cloud spending was already a $180 billion market back in 2015, and Bain & Company believes that market will escalate to $390 billion by 2020 — a 17% CAGR.
SKYY puts you in position to reap the profits from this growth, though it’s important to note this isn’t a completely pure-play cloud ETF.
SKYY’s 30 holdings are divided into three categories: pure-play cloud computing companies that are either direct cloud service providers, or “deliver goods and services that utilize cloud computing technology”; non-pure plays that have cloud offerings, though the companies themselves aren’t primarily focused on the cloud; and technology conglomerate cloud computing companies that indirectly use or support cloud tech.
The result is a mishmash of companies that include open-source software king Red Hat Inc (RHT), social media titan Facebook Inc (FB), customer relationship management software firm Salesforce.com, Inc. (CRM) and even streaming content provider Netflix, Inc. (NFLX). Its purity is questionable, but the heavy cloud emphasis with exposure to fringe plays has helped this fund outperform most broader-based tech ETFs.
This article is from Kyle Woodley of InvestorPlace. As of this writing, he held none of the aforementioned securities.
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