The 15 Best Technology ETFs to Buy for Stellar Gains
Check out the best technology ETFs for amassing either wide swaths of innovators, or targeted clusters of tech stocks capable of harnessing rising trends.
Technology stocks and tech exchange-traded funds (ETFs) have long been a source of growth and outperformance. But even by its own high standards, 2020 has been a blockbuster year – and demonstrated that there are still more areas of the economy where tech can make inroads.
Consider that you're reading this article on a laptop, tablet or smartphone. It's possible you're doing so at home, in the middle of work, which you've done remotely for months thanks to far-flung data centers and lightning-quick internet. When you're done, maybe you'll ask your refrigerator to order you more milk, hop on your stationary bike and join a virtual workout session, or watch a movie from one of your streaming subscription services.
I think you get the point.
The COVID-19 pandemic might not have created all of the technological advances that many people in the world are using today. But it surely hurried their adoption, cemented several mega-cap tech stocks' dominance, and turned fledgling industries into growth dynamos.
And, of course, the money – and rewards – have followed. In 2020, the five largest technology ETFs in the U.S. alone have added roughly $34 billion in assets under management (AUM) through the end of August, averaging 71% growth from the start of the year. In the same period, they've averaged 37% in total returns (price plus dividends). Compare that to roughly 10% growth among all U.S.-listed ETF assets, to $4.8 trillion, according to the Investment Company Institute, and a 7% total return for the S&P 500.
Individual tech stocks are great, if you're willing to stomach the risk. The sector is rife with disruption, and even longtime winners can suddenly find themselves on the outs – just ask Nokia (NOK) or BlackBerry (BB). But tech ETFs whittle down the potential for a single stock to torpedo your portfolio by spreading that risk across dozens if not hundreds of stocks.
Here, then, are 15 of the best technology ETFs to buy for stellar gains. These funds allow you to participate in the growth of the entire sector, or even smaller industry trends, while minimizing the risk of single-stock implosions.
Data is as of Oct. 7. Dividend yields represent the trailing 12-month yield, which is a standard measure for equity funds. N/A = yield not available because fund has not been in existence for more than 12 months.
Vanguard Information Technology ETF
- Assets under management: $37.3 billion
- Dividend yield: 0.9%
- Expenses: 0.10%, or $10 annually on $10,000 invested
We'll start with a few ways investors can get broad access to the technology sector.
The Vanguard Information Technology ETF (VGT, $316.61) has long been considered among the best technology ETFs for broad access, as well as one of the cheapest ways to access the space. But in 2020, it also became the largest. In mid-May, VGT surpassed the Technology Select Sector SPDR Fund (XLK) by assets under management, and it hasn't looked back since, currently boasting roughly $37 billion versus XLK's $34 billion.
So what does VGT do?
The Vanguard Information Technology ETF holds roughly 330 stocks within the technology sector, with a heavy emphasis on large-cap stocks, which make up about 85% of the fund. But an important thing to note is that "technology" isn't always what you think it is.
For instance, the tech sector is software companies such as Microsoft (MSFT), device makers like Apple (AAPL) and chip manufacturers such as Intel (INTC). But it's not social media giant Facebook (FB), nor is it Alphabet (GOOGL), the parent of search leader Google. That's because in 2018, changes were made to the Global Industry Classification Standard (GICS) that determines which stocks belong in which sectors and industries. This included the creation of the communications sector, which essentially “stole” various stocks from tech, including the likes of FB and GOOGL.
Still, with VGT you get access to industries such as systems software, application software, data processing, semiconductors, tech hardware, communications equipment, IT consulting and more.
Just note that this wide net isn't as diversified as it seems. VGT is market cap-weighted, which means the bigger the stock in the fund's investing universe, the more assets it dedicates to it. Thus, while VGT hold 330 stocks, nearly 40% of AUM are invested in Apple and Microsoft – the sector's two largest stocks by a country mile.
That means a change in fortunes for either tech giant could significantly weigh on the entire fund. The flip side? Apple and Microsoft are two of the most financially secure companies on the planet, so they have plenty of ways to maneuver should things get really hairy.
VGT also is one of the least expensive technology ETFs on the market, at just 10 basis points in annual expenses. (A basis point is one-hundredth of a percentage point.)
iShares Evolved U.S. Technology ETF
- Assets under management: $90.3 million
- Dividend yield: 0.5
- Expenses: 0.18%
If you're interested in a technology ETF that looks a little bit more like how things used to be, look to the iShares Evolved U.S. Technology ETF (IETC, $42.98). To better understand the “Evolved” series, here’s an excerpt from our look at the iShares Evolved health-care ETF.
“Rather than a traditional human manager, these funds essentially will be operated by robots. The goal here is for these robots to use language processing and machine learning to think outside the box when it comes to determining what belongs where. As it stands right now, systems such as the Global Industry Classification Standard (GICS) sort companies into sectors and industries. But sometimes, there’s not necessarily a clean fit – a company might make just as much sense in one sector as another. The example iShares provides is Amazon, which GICS classifies as “consumer discretionary” because it’s primarily a retailer – however, the core of its business is based in computer technology, not to mention its growing cloud business is clearly a tech arm. Thus, in iShares’ evolved-sector approach, Amazon is actually classified as both a technology company and consumer discretionary company.”
Indeed, Amazon.com (AMZN) is a top-five holding in IETC. And hey! So are Facebook and Alphabet! (Behind Apple and Microsoft of course.) Add in other top holdings such as chipmaker Nvidia (NVDA), cloud-based customer relationship management stock Salesforce.com (CRM) and Visa (V), and IETC closely resembles broad tech funds before the GICS changes took effect.
The clear benefit is getting access to great companies that might not be in the technology sector based on a specific set of written standards, but absolutely leverage (or even create) technological innovations to the benefit of their shareholders. That makes IETC among the top tech ETFs you can consider.
Invesco S&P SmallCap Information Technology Portfolio
- Assets under management: $240.5 million
- Dividend yield: 0.2%
- Expenses: 0.29%
If you’re comfortable taking on relatively higher risk in a broad index portfolio, you may want to consider the Invesco S&P SmallCap Information Technology Portfolio (PSCT, $90.87).
PSCT’s 75 holdings are spread across several tech segments, including semiconductors and semiconductor equipment (28%); electronic equipment, instruments and components (27%); software (19%) and IT services (17%), with sprinklings of other industries. Top holdings are diversified, too, ranging from Brooks Automation (BRKS), which makes automation, vacuum and other equipment for semiconductor manufacturers; AI chatbot developer LivePerson (LPSN); and home-security company Alarm.com (ALRM).
Growth here can come from a couple of places. Like any other tech company, if a particular service or product takes off, these small-cap stocks should, too. And given the idea that it’s easier to double $1 million in revenues than $1 billion, they theoretically should have even more “pop” potential.
But also, because the average market capitalization of companies in this fund is under $2 billion, many of these businesses are priced right to be acquired by tech’s mega-caps, who sometimes look to grow through mergers. Thus, big buyout premiums can drive this ETF higher, too.
ARK Innovation ETF
- Assets under management: $8.9 billion
- Dividend yield: 0.2%
- Expenses: 0.75%
The three previous technology ETFs and most of the others on this list are "passive" funds that track some sort of index. But if you prefer a seasoned human hand, like you might be used to if you're a mutual fund investor, you'll want to consider the ARK Innovation ETF (ARKK, $99.21).
The ARK Innovation ETF is one of several funds managed by Ark Invest founder, CEO and CIO Catherine Wood. Prior to registering ARK Investment Management LLC in 2014, she spent 12 years as CIO of Global Thematic Strategies at AllianceBernstein.
Since starting ARK Invest, Wood has accumulated a number of accolades and awards. But most pertinent to investors: She has built a number of extremely successful products, including ARKK, which has beaten 99% of its mid-cap growth category peers over the trailing one-, three- and five-year periods, and has generally crushed most technology-focused ETFs.
ARK Innovation ETF looks to invest in disruptive technologies across four areas: genomic, industrial, next-gen internet, and fintech (financial technology). The fund typically holds between 35 and 55 holdings, and Wood is happy to throw significant weight into high-conviction holdings.
She has put more than 10% of ARKK's assets into electric vehicle maker Tesla (TSLA), a stock she has famously assigned high price targets to. (In February, for instance, when Tesla was trading around $900 per share, she said Tesla would hit $7,000 per share by 2024; if you back out the effect of Tesla's 5-for-1 stock split, shares are trading for about $2,126 today.) She has another 9% in genetic testing expert Invitae (NVTA).
ARKK isn't an ETF for the faint of heart, but Wood has proven an adept manager of her investors' funds.
iShares PHLX Semiconductor ETF
- Assets under management: $3.7 billion
- Dividend yield: 1.1%
- Expenses: 0.46%
When people think about semiconductors, or “chips,” their minds typically first go to things such as CPUs and GPUs that power processes and graphics in computers, tablets and smartphones.
But they have myriad more uses, for both simpler and grander purposes.
Semiconductor chips have a myriad of applications, and are found in just about anything, from AC/DC power sources and dishwashers to satellite transponders and ultrasound scanners. They’re also the very thing that will support the growing “Internet of Things” – the digital connectivity of everyday objects such as refrigerators and alarm clocks.
The iShares PHLX Semiconductor ETF (SOXX, $315.68) is the largest fund dedicated to semiconductor stocks, and holds a concentrated portfolio of 30 top industry names.
That naturally includes Intel, one of the biggest names in a variety of chips. But it also includes Nvidia, the hot-running graphics specialist best known for its gaming chips, but that has grown a massive data center business and has a presence in technologies such as artificial intelligence and autonomous driving. SOXX also holds Texas Instruments (TXN), whose analog chips are far simpler but have their own multitude of uses in consumer products and industrial systems. Tops at the moment, however, is an 8.2% weighting in Broadcom (AVGO), whose products will help support phone manufacturers’ shift to 5G technology.
SOXX has a modified weighting system, so assets invested in each stock aren’t perfectly proportional to their market capitalization. However, larger companies still have an outsize pull on the fund, with AVGO, TXN, INTC, NVDA and Qualcomm (QCOM) all commanding roughly 8% weights currently.
First Trust Dow Jones Internet Index Fund
- Assets under management: $10.3 billion
- Dividend yield: 0.0%
- Expenses: 0.52%
The internet has stretched into nearly every facet of the human experience, from raising children to our social connections to how we purchase things to how we work.
That makes the First Trust Dow Jones Internet Index Fund (FDN, $192.48) – a concentrated portfolio of 40 U.S. companies that generate at least 50% of their annual revenues from the internet – a naturally attractive play.
The top holdings are a who’s who of sites you visit every day, or whose apps you regularly use. They’re also fountains of potential growth.
- Amazon.com is the world’s largest e-commerce company, but it’s also America’s largest cloud-services provider, and its Echo smart-speaker products are making it a likely candidate to dominate the smart home.
- Facebook is the world’s largest social media site, boasting 2.7 billion monthly active users worldwide on its core site alone, not to mention properties WhatsApp (2 billion MAUs) and Instagram (1.1 billion MAUs) – and it’s leveraging the data it’s collecting on all those users to better target ads to them.
- Netflix (NFLX) is a titan of streaming video, boasting 139 million paying subscribers in the U.S. and abroad.
Like many of the other best technology ETFs on this list, FDN is market-cap weighted, meaning the largest companies have the loudest say in performance.
Global X FinTech ETF
- Assets under management: $755.8 million
- Dividend yield: 0.0%
- Expenses: 0.68%
One area of the world that’s changing rapidly thanks to technology is the financial services center, where long lines at the bank are being replaced with camera-enabled deposits and non-bank financial accounts.
Enter the Global X FinTech ETF (FINX, $39.34), one of a handful of fintech ETFs.
FINX, which holds a small bundle of 33 holdings involved in the technological advancement of finance, carries a few names you’d immediately expect off the top of your head. That includes companies such as PayPal (PYPL) – one of the first online payments systems that now is worth $140 billion more than American Express (AXP) by market value – and Square (SQ), whose point-of-sale systems blossomed among small businesses.
Americans and the rest of the world are increasingly take their finances online, and that trend has accelerated amid the COVID-19 pandemic. That has been a tailwind for FINX, which has zoomed 30% higher year-to-date – and most expect the trend to only continue in the years ahead.
Global X Telemedicine & Digital Health ETF
- Assets under management: $361.2 million
- Dividend yield: N/A*
- Expenses: 0.68%
Another Global X “thematic” offering – rather than broad-sector or even industry-specific funds, these ETFs are designed to chase certain economic, technological and other trends – is the Global X Telemedicine & Digital Health ETF (EDOC, $17.27).
If you've gotten onto video to "see" your doctor over the past few months you're not alone.
"Prior to the pandemic, there are a number of different surveys showing that in the U.S., adoption rates of those using telehealth in the U.S. were ranging from 10% to 20%," says Andrew Little, thematic research analyst at Global X ETFs. "In April, at the height of the pandemic – when we say height, we don't mean mortality rate, we're more so talking about the stress and uncertainty on the systems – we saw that adoption was at 46, according to a McKinley survey, and up to 60% according to other surveys.
"And then patients talking about their willingness to use telehealth going forward, even after the pandemic, was around 70%."
EDOC, which has quickly amassed more than $360 million in assets since its launch in late July 2020, gives investors exposure to the future of health via a portfolio of 40 holdings. Holdings range from ambulatory cardiac monitoring firm iRhythm Technologies (IRTC) to life sciences cloud computing company Veeva Systems (VEEV) to Livongo Health (LVGO), whose software helps people manage chronic diseases by tracking blood pressure, blood sugar levels and other health metrics.
Like many of the best technology ETFs, there is some international exposure. The U.S. makes up the largest chunk of assets at 83%, but you also have access to companies such as Japanese medical services firm M3 and China's Alibaba Health.
ROBO Global Artificial Intelligence ETF
- Assets under management: $8.4 million
- Dividend yield: N/A
- Expenses: 0.68%
THNQ's portfolio of roughly 70 artificial intelligence stocks is divided into two classifications:
- Infrastructure, which includes businesses ranging from big data and cloud providers to semiconductors; and
- Applications & Services, which includes e-commerce and consulting services ... and yes, even factory automation, consumer and health care.
But each of these companies has to check off several boxes to be considered genuinely tethered to AI.
"Every company goes through scrubbing. Then we score them — tech leadership, revenue leadership, revenue purity AI investment," says ROBO Global's senior research analyst Lisa Chai. "Having AI in your business is not just about hiring some data scientists to run tools and apps. You need to build an infrastructure."
Chai points to infrastructure software holdings such as Twilio (TWLO) and Atlassian (TEAM) "that are enabling software developers and businesses to build a new generation of intelligent applications," or hardware companies such as ASML Holding (ASML) and Lam Research (LRCX) that are building a "new generation of microprocessors designed to process AI." E-commerce is well represented, too, by companies such as Shopify (SHOP) and Wix.com (WIX) that use artificial intelligence to personalize website experiences.
The wide portfolio of 70 companies is an intentional choice, too. "We think AI is still very early," Chai says, "so having diversified exposure is the best way (to invest in the space)."
ARK Web x.0 ETF
- Assets under management: $2.5 billion
- Dividend yield: 0.0%
- Expenses: 0.76%
The ARK Web x.0 ETF (ARKW, $114.37) is another ETF managed by Catherine Wood, this one loosely based around cloud computing technology, but it’s far from just a collection of cloud providers.
ARKW holds companies that “are focused on and expected to benefit from shifting the bases of technology infrastructure to the cloud,” so that includes companies that offer cloud platforms and/or storage, but also companies that use and can otherwise benefit from the expansion of the cloud.
The result is a much more wide-ranging portfolio that includes themes such as big data, the Internet of Things (IoT) and machine learning.
Top holdings include the likes of Roku (ROKU), which provides streaming players and smart TVs that are specifically built to accommodate streaming services; Pinterest (PINS), a visual social network; Sea (SE), a Southeastern Asian internet platform provider spanning games, e-commerce and digital financial services; and Tesla, whose AI innovations power its Autopilot autonomous-driving system.
It should be noted that each of the themes in the aforementioned ARKK is represented by technology ETFs like ARKW. The others are Ark Autonomous Technology & Robotics ETF (ARKQ), Ark Genomics Revolution ETF (ARKG) and Ark Fintech Innovation ETF (ARKF).
KraneShares CSI China Internet ETF
- Assets under management: $2.9 billion
- Dividend yield: 0.1%
- Expenses: 0.73%
The U.S. is far from the only hub of technology giants across the world. We might have the FANGs (Facebook, Amazon, Netflix and Google parent Alphabet). But look over to China, and you’ll find similar technological superpower in companies such as e-commerce titans Alibaba (BABA) and JD.com (JD), sprawling internet and gaming presence Tencent (TCEHY) and online real estate broker KE Holdings (BEKE).
These stocks all feature prominently in the KraneShares CSI China Internet ETF (KWEB, $70.50), one of the best technology ETFs with an international bent. And they all have enjoyed varying amounts of success in what has been an excellent year for internet-based stocks, not just in the U.S. but across the world.
A growing Chinese middle class and internet expansion help the bull case. For instance, Chinese internet users have roughly doubled since 2010, to 900 million people – only 63% of the population, which is far from saturated.
KraneShares’ ETF, one among a handful of China tech ETFs, is one of the most direct ways to capture this potential, investing in roughly 30 holdings, including the aforementioned firms as well as other Chinese internet stocks such as after-school tutoring specialist TAL Education Group (TAL) and online travel site Trip.com (TCOM).
Emerging Markets Internet & Ecommerce ETF
- Assets under management: $1.1 billion
- Dividend yield: 0.9
- Expenses: 0.86%
But take a gander across your nearest ocean, and you’ll see that e-commerce stocks are just as hot overseas. And that's not a sudden change.
The Emerging Markets Internet & Ecommerce ETF (EMQQ, $53.66), which debuted in November 2014, cleared the $1 billion AUM mark earlier this year, is leveraging a longstanding growth trend.
"The back story of how I decided to make EMQQ was that, after eight years focused on emerging markets and China, all you really wanted to do is have exposure to consumption," says Kevin Carter, founder of EMQQ. "That was a story long before COVID, a story before I even got involved with emerging markets, it was well-documented was the thing that was emerging was the people, and they wanted stuff."
Indeed, global e-commerce has boomed over the past decade, and it's expected to keep growing at a healthy clip. ResearchAndMarkets projects global e-commerce will explode from $1.8 trillion in 2019 to $2.4 trillion in 2020, then pull back to "just" a 14% compounded annual growth rate until reaching $3.05 trillion in 2023.
The Emerging Markets Internet & Ecommerce ETF holds roughly 85 stocks across 11 emerging markets, with Chinese stocks taking up more than half the fund, though South Korea, South Africa and Argentina all make up significant weightings, too.
To be included in the EMQQ Index, a company must generate at least 50% of its revenue from the internet or e-commerce industries in both emerging and frontier markets. Top holdings at the moment include China's Alibaba, Tencent and Meituan Dianping, but also Latin American e-commerce site Mercadolibre (MELI) and South African internet group Naspers (NPSNY).
That said, Carter points out that you get much more diversification than what the holdings list might imply.
"In addition to the companies we own, you get exposure to 300 or more private companies," he says. "Because Alibaba and Tencent are two of the biggest capital venture companies in the world. And they have internet investments all over the world."
Roundhill BITKRAFT Esports & Digital Entertainment ETF
- Assets under management: $45.2 million
- Dividend yield: 0.2%
- Expenses: 0.50%
Video gaming has gone from a niche interest in its early years to a worldwide global phenomenon that has literally hundreds of millions of participants – yet there’s still a “next step.” That’s “eSports” – competitive gaming.
And it’s serious business, with gamers vying for substantial cash prizes while playing in arenas in front of live fans, as well as in front of cameras broadcasting these events to millions of fans.
Consider that ResearchAndMarkets forecasts the global esports market will grow at more than 18% annually, reaching $2.4 billion by 2024. That entails everything from sponsorship, media rights, advertising, even tickets and merchandise.
The Roundhill BITKRAFT Esports & Digital Entertainment ETF (NERD, $25.22) is among a small subset of technology ETFs you can buy to access this theme.
NERD's tight portfolio consists of roughly 30 companies from around the world that are tied to the eSports industry. The huge video game markets of the U.S. and China each. make up roughly a quarter of assets, but it also provides access to companies from South Korea, Japan, Singapore, Sweden and more.
The modified equal-weighted portfolio ensures that the fund is never too overly dependent on any one or two stocks. The top holdings in the fund – which include Tencent, Activision Blizzard (ATVI) and Huya (HUYA) – each account for just more than 5% of assets.
NERD also is, along with the Global X Video Games & Esports ETF (HERO), the cheapest way to invest in video games and eSports, at just 0.50% in annual fees.
Direxion Work From Home ETF
- Assets under management: $126.8 million
- Dividend yield: N/A
- Expenses: 0.45%
"Work from home" has become one of the most ubiquitous terms of 2020, as millions of Americans were forced to abandon their offices for the relative comforts – but also distractions – of home.
But it's hardly a new concept.
Remote work might just be a months-old concept to many Americans, but this more flexible work style has been on the rise for years. Direxion points out that even in 2017, 43% of employed Americans were spending "at least some time working remotely."
Still, COVID has accelerated the shift toward telecommuting, bolstering the fortunes of various internet, cloud and other technology companies that power a remote workforce. More than half of U.S. companies say they plan on making remote work a permanent option in the wake of COVID-19, and three-quarters of Fortune 500 CEOs say they plan on accelerating their companies' technological transformations.
The Direxion Work From Home ETF (WFH, $56.36), when it launched in June, became the first such one-stop shop to harness this trend's potential.
The Work From Home ETF tracks the Solactive Remote Work Index, which focuses on four technologies crucial to keeping companies operating efficiently with remote workforces: cloud technologies; cybersecurity; online project and document management; and remote communications.
The resulting portfolio is an equal-weighted group of roughly 40 work-from-home stocks – many of which have become much more popular with investors (and American workers) in 2020.
Top holdings include the likes of Zoom Video; Twilio, which provides communications infrastructure for companies; cybersecurity firm CrowdStrike Holdings (CRWD); and Inseego (INSG), which develops solutions for mobile, IoT and the cloud.
Fidelity MSCI Telecommunication Services Index ETF
- Assets under management: $548.8 million
- Dividend yield: 0.8%
- Expenses: 0.084%
Our last fund is absolutely, 100% not a technology ETF, if you ask GICS. But if you’re looking to invest in the likes of Facebook and Alphabet, as well as a host of other companies that either used to be “technology” and/or still could be considered technology, the place to find them is the Fidelity MSCI Telecommunication Services Index ETF (FCOM, $38.79).
The FCOM – like VGT, a much different fund than it once was – used to be a telecom-heavy ETF where Verizon (VZ) and AT&T (T) enjoyed 20%-plus weightings. In turn, the fund was a surprisingly good yielder whose annual dole typically sat around 3% and dwarfed most other sector funds – even the First Trust Nasdaq Technology Dividend ETF (TDIV).
Nowadays, though, it better resembles some of its growthier members, such as Facebook, Alphabet, Comcast (CMCSA), Netflix and Walt Disney (DIS), yielding a skinflint 0.8% that's more along the lines of traditional tech funds.
The portfolio includes more than 100 communications-sector stocks, though this is another top-heavy fund. Alphabet makes up more than 21% of the fund's weight between its GOOGL and GOOG shares, and Facebook is another 17%.