Best Tech ETFs to Buy Now

What sector has driven much of the U.S. stock market's gains in the past decade and now accounts for 34% of the S&P 500 and 63% of the Nasdaq 100? If you guessed technology, you're right.

While past eras of American growth were shaped by industries such as oil in the 1970s, manufacturing in the 1980s and finance in the 1990s. The 2000s, following the dot-com bust and the 2008 financial crisis, have been defined by the resurgence and dominance of tech.

Investor interest has shifted from one theme to the next: cybersecurity, cloud computing, robotics, semiconductors and more. Some, such as the metaverse, proved fleeting. Others, including artificial intelligence (AI), continue to fuel massive research budgets and capital expenditures, reshaping not just markets but global competition.

Tech ETFs offer one of the simplest and most efficient ways to gain exposure to these trends, so long as you understand how they're constructed and perform.

How to pick the right tech ETF

If the 34% and 63% weightings of tech stocks in the S&P 500 and Nasdaq-100 aren't enough for your goals, you can use a narrower technology ETF to increase your exposure.

But doing so means stepping into the world of active investing. Narrower ETFs require more attention, longer due diligence and a better understanding of what you're actually buying than a simple, broad-market index fund.

That's why it's important to match the specificity of the ETF to your investment objective. One helpful way to think about the tech ETF universe is in three tiers: sector-level, industry-level and thematic.

At the sector level, technology is one of the 11 sectors defined by the Global Industry Classification Standard (GICS), a widely adopted taxonomy used by major index providers such as S&P Dow Jones and MSCI.

Most broad tech ETFs follow this standard, and it generally includes what Wall Street analysts refer to as "tech": enterprise software firms, semiconductors, IT service providers and so on.

However, GICS doesn't always align with investor expectations. Some of the most well-known companies often thought of as tech — namely, Netflix (NFLX), Alphabet (GOOGL) and Meta Platforms (META) — aren't classified under the tech sector at all.

Instead, they're tagged as communication services stocks and lumped together with traditional telecoms such as Verizon Communications (VZ) and AT&T (T).

Meanwhile, Tesla (TSLA) and Amazon.com (AMZN), despite their deep involvement in automation and cloud computing, respectively, are categorized as consumer discretionary stocks.

On the surface, Tesla sells cars and Amazon runs an e-commerce platform, but their business models include clear technology-driven components, such as autonomous vehicle software and cloud computing.

If an ETF markets itself as "tech sector," check whether it follows GICS classifications, as you might be surprised by which names are excluded.

If you're particularly bullish on one area of tech but more neutral on others, an industry-specific ETF can offer more targeted exposure than a broad sector fund. GICS divides the tech sector into five primary industry groups:

• IT services
• Software
• Communications equipment
• Technology hardware, storage & peripherals
• Electronic equipment, instruments & components

Drilling down on individual stocks, International Business Machines (IBM) sits under IT services, focusing on enterprise solutions and cloud infrastructure. Salesforce (CRM) and Oracle (ORCL) are software names offering cloud-based applications and databases.

In the equipment category, you'll find semiconductor stocks including Nvidia (NVDA) and Texas Instruments (TXN), as well as networking hardware producers such as Cisco Systems (CSCO).

Keep in mind that the narrower the ETF, the more likely it is to be concentrated in a handful of large names, so you'll need to weigh the benefits of focus against the risks of reduced diversification. This can be an issue in industries in which one standout such as Nvidia outperforms the others.

Lastly, there's the thematic approach. These ETFs aren't bound to GICS classifications, and instead follow customized benchmarks designed to track specific trends. This flexibility is especially useful today, when companies increasingly operate across traditional sector lines. For example, a thematic AI-focused ETF might include:

• Semiconductor firms such as Nvidia that supply the processing power
• Data center REITs that provide the storage backbone
• Software developers building large language models

Whether you choose a sector-based, industry-specific or thematic ETF, it's always a good idea to check the index it tracks. Review the index's inclusion rules and definitions.

That way, you won't be caught off guard when your "tech" ETF doesn't include a company you assumed would be there.

How we picked the best tech ETFs

We started by filtering for ETFs with expense ratios no higher than 0.45%. That's more than you'd typically pay for a broad-market index fund, but reasonable, given the added specificity that tech-focused funds provide.

Even within the technology category, costs tend to rise as you move from sector-level to industry-specific to thematic strategies, so a little premium is expected, but we avoided funds that charged too much for that focus.

We also required a minimum $1 billion in assets under management (AUM). At this level, the risk of ETF closure is very low. Larger funds also tend to be more resilient in bear markets and better equipped to handle large inflows and outflows without disrupting performance.

Liquidity was another important screen. While many investors might hold tech ETFs as part of a long-term sector overweight, others use them for tactical trading, for example, during earnings season.

With that in mind, we only included exchange-traded funds with a 30-day median bid-ask spread of 0.10% or less, helping ensure tight execution for both buy-and-hold and active traders.

Finally, we stuck to ETFs that track an index. Passive products not only have lower fees but also offer full transparency. With an index ETF, you can easily visit the provider's site, download the methodology and understand how the fund is constructed.

That's not always the case with active ETFs, which rely heavily on a manager's discretion or a proprietary model, turning the strategy into more of a black box. For most investors, index-based ETFs offer the clarity and consistency that's easier to evaluate and build around.