Best tech ETFs to Invest

The technology sector is fast-growing, therefore a very volatile sector where great expectations are easily created that are not always met. It is so-called the Red Queen effect. In this article, we will see the best tech ETFs to invest. A good alternative with low costs.

best tech etfs

Composition of the technology sector

The Technology Sector or also called Information Technology is composed of 3 industries:

  • The Software and Services
  • The Hardware and Equipment
  • The Semiconductors.

In addition, a few of the technological industries also base on medical devices and biotechnology stocks.

These industries in turn are composed of different sub-industries and niches described in the image below:

best tech etfs uk

The evolution of the sector has been rapid in the last 10 years. This means that the sub-industries mostly maintain the same weights, except for Internet and IT Services. Both have grown enormously since the beginning of the century due to the rise of the Internet and information technology.

But the second group presents a drop in 2018 due to a reclassification, as companies like Meta or Alphabet moved to the Communication Services sector, which was previously called the Telecommunication Sector. And also some other companies, like eBay, were moved to the discretionary consumer sector.

The following graph shows the evolution of the weight of each industry within the sector:

best tech etf

How to analyze ETFs of the technology sector?

One of the common mistakes in this field is the man with the hammer, who thinks that everything is a nail and hits everything equally. Just as when we analyze stocks and try to find the multiple that best explains what the market is discounting, we must do the same with ETFs.

In the technology sector, the one that works best is the P/S, and we can complement it with the Gross Margin. This does not mean that profits or FCF are not important, they are, but we must understand the life cycle of each company within its portfolio and see what variables matter at that time. And then see if the market is doing its job well or not by discounting expectations and discovering prices. For example:

  • Very new companies might have a negative net profit because they have not yet reached the break-even point, but thanks to their exponential sales and wide gross margin, they have good expectations of getting there soon. Therefore, if the ETF has very new technology companies in its portfolio, we could expect negative net or even operating profits, but we should discard those whose portfolios mainly have companies without exponential sales and with low gross margins.

Obviously, depending on the composition of the portfolio, the analysis criteria will change. That's why it's also important to study the stocks that the ETF carries in its belly and see if they are in tune with your goal and the strategy we have chosen.

For this reason, we will divide the Technology ETFs into two categories: Global/Regional and thematic/subindustry/niche.

Best tech ETFs to invest in the Global/Regional sector

Below are the ETFs that have performed best in the last 3 years, but remember that past returns do not guarantee future returns. That's why at the beginning of the post we gave some indications of how to analyze these ETFs.

  • iShares S&P 500 Information Technology Sector UCITS ETF USD (Acc)
    • TER: 0.15%
    • 3-year return: 67.35%
    • 1-year volatility: 25.34%
    • Ticker: QDVE
  • Invesco US Technology Sector UCITS ETF
    • TER: 0.14%
    • 3-year return: 66.39%
    • 1-year volatility: 25.22%
    • Ticker: SML3
  • Xtrackers MSCI USA Information Technology UCITS ETF 1D
    • TER: 0.12%
    • 3-year return: 56.14%
    • 1-year volatility: 25.28%
    • Ticker: XUTC
  • iShares MSCI World Information Technology Sector ESG UCITS ETF USD (Dist)
    • TER: 0.25%
    • 3-year return: 51.71%
    • 1-year volatility: 23.87%
    • Ticker: AYEW

Interestingly, these four ETFs follow different indices from the same sector. This is important because their composition and universe vary. Here are the indices they follow:

  • S&P 500 Information Technology Sector
  • US Technology Sector
  • MSCI USA Information Technology
  • MSCI World Information Technology

We will analyze the first 2 ETFs and understand the differences in their indices.

iShares S&P 500 Information technology sector UCITS ETF USD (Acc)

The ETF follows the S&P 500 Information Technology Sector index which holds companies in the Information Technology sector according to the GICS classification.

It has a complete physical replica and its base currency is the USD and it does not have currency coverage. Its dividend policy is accumulation and it is domiciled in Ireland.

The following is a sectorial and country breakdown of its portfolio:

best technology etf

And these are the main positions:

best technology etfs

Invesco US Technology Sector UCITS ETF

The ETF seeks to replicate the S&P Select Sector Capped 20% Technology index which limits the maximum weight of a stock to 20%.

It has a synthetic replica and its base currency is the USD and it does not have currency hedging.It is domiciled in Ireland and its dividend policy is accumulation with annual volatility is 28.59%

The table contains the top positions.

Best tech ETFs to invest in the thematic sector by Subindustry/Niche

Below are some of the thematic ETFs that have had the best return over 3 years.

  • Xtrackers Artificial Intelligence & Big Data UCITS ETF 1C
    • TER: 0.35%
    • 3-year return: 57.97%
    • 1-year volatility: 21.76%
    • Ticker: XAIX
  • Lyxor MSCI Future Mobility ESG Filtered (DR) UCITS ETF – Acc
    • TER: 0.45%
    • 3-year return: 46.03%
    • 1-year volatility: 21.96%
    • Ticker: ELCR
  • Xtrackers Future Mobility UCITS ETF 1C
    • TER: 0.35%
    • 3-year return: 45.35%
    • 1-year volatility: 17.81%
    • Ticker: XMOV
  • First Trust Nasdaq Cybersecurity UCITS ETF Acc
    • TER: 0.60%
    • 3-year return: 43.60%
    • 1-year volatility: 22.24%
    • Ticker: CBRS
  • iShares Electric Vehicles and Driving Technology UCITS ETF USD (Acc)
    • TER: 0.40%
    • 3-year return: 38.87%
    • 1-year volatility: 18.19%
    • Ticker: IEVD

Xtrackers Artificial Intelligence & Big Data UCITS ETF 1C

The ETF seeks to replicate the Nasdaq Global Artificial Intelligence and Big Data index which holds international companies in the artificial intelligence, big data and cybersecurity sectors.

It has a complete physical replica. Its base currency is the USD and it does not have currency coverage. It is domiciled in Ireland and its dividend policy is accumulation.

The following is a sectorial and country breakdown of its portfolio:

These are its main positions:

Lyxor MSCI Future Mobility ESG Filtered (DR) UCITS ETF – Acc

The ETF follows the MSCI ACWI IMI Future Mobility ESG Filtered index which has in its portfolio companies from developed and emerging markets whose business model is focused on the future of mobility and that meet ESG criteria.

It has a complete physical replica and its base currency is the USD. It does not have currency hedging. It is domiciled in Luxembourg and its dividend policy is accumulation.

The following image shows its main positions:

And this is a sectorial and country breakdown:

Top choices for ETFs

Minimum deposit:

£0.00

Minimum deposit:

£50.00

FAQs about ETFs to invest in the Technology Sector

DO technology ETFs Worth it?

Tech ETFs can be an attractive option if you are an investor looking for high growth potential. The ETFs increase your odds of earning higher returns as they sector is fast growing. Also, with ETFs, you stand a chance of more return than investing in individual tech stocks.
ETFs generally carry less risk because of diversification of portfolio.

What is ETF in technology?

A technology ETF is an exchange-traded fund that curate several technological companies in it portfolio and allow investors to maximize the potential of the companies growth to make profit instead of buying stock and shares in the companies. It gives a hedge over stock buying because your have diverse companies in the portfolio and their performance gives you more gain and vice versa

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