Technology sector exchange-traded funds (ETFs) buy and sell the shares of manufacturers and service providers of electronics and information technologies that comprise the technology sector. Technological solutions in this sector range from consumer goods to enterprise software. The shares of these companies typically trade at high earnings multiples compared to other sectors and have been known to drive market cycles frequently. Companies with significant market capitalization, such as Apple Inc. (AAPL), Microsoft Corp. (MSFT), and Alphabet Inc. (GOOG), as well as small-cap and micro-cap companies, contribute to the sector’s outlook and growth.
Key Takeaways
- The technology sector slightly outperformed the broader stock market over the past year.
- The technology exchange-traded funds (ETFs) with the best one-year trailing returns are FTXL, XSD, and SOXX.
- The top holdings of the first and third of these funds is Broadcom Inc., and the top holding of the second fund is Analog Devices Inc.
There are 69 technology ETFs that trade in the United States, excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets under management (AUM). The sector as represented by the S&P 500 Information Technology Sector Index outperformed the broader market. The benchmark sector index posted a 0.5% one-year trailing return as compared with the S&P 500’s total return of -1.9% as of May 12, 2022. The best technology ETF, based on performance in the past year, is the First Trust Nasdaq Semiconductor ETF (FTXL). We will look at the top three technology ETFs below. All numbers reported are as of May 12, 2022.
- Performance Over One-Year: 2.0%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 0.23%
- Three-Month Average Daily Volume: 14,314
- Assets Under Management: $86.6 million
- Inception Date: Sept. 20, 2016
- Issuer: First Trust
FTXL targets the Nasdaq US Smart Semiconductor Index, a modified factor-weighted index of U.S. semiconductor companies. The index selects the 30 most liquid U.S. semiconductor companies and ranks them based on factors including volatility, value, and growth. While the vast majority of the funds holdings are semiconductor stocks, about 22% are production technology equipment stocks as well. The top holdings of FTXL include Broadcom Inc.; Intel Corp. (INTC); and Texas Instruments Inc. (TXN), all of which are companies that produce semiconductors and related products.
- Performance Over One-Year: 1.8%
- Expense Ratio: 0.35%
- Annual Dividend Yield: 0.10%
- Three-Month Average Daily Volume: 126,432
- Assets Under Management: $1.0 billion
- Inception Date: Jan. 31, 2006
- Issuer: State Street
XSD targets the S&P Semiconductor Select Industry Index, a modified equal weight index of companies representing the semiconductors segment of the S&P Total Market Index. XSD includes stocks across the market capitalization spectrum and focuses on U.S.-listed stocks. The ETF primarily targets small-cap and mid-cap semiconductor companies primarily, offering strong growth opportunity but at the cost of increased volatility. The top holdings of XSD include Analog Devices Inc. (ADI); Silicon Laboratories Inc. (SLAB); and Broadcom Inc. (AVGO), all of which are companies manufacturing semiconductors and related products.
- Performance Over One-Year: 0.8%
- Expense Ratio: 0.43%
- Annual Dividend Yield: 0.61%
- Three-Month Average Daily Volume: 1,573,938
- Assets Under Management: $7.1 billion
- Inception Date: July 10, 2001
- Issuer: BlackRock Financial Management
SOXX seeks to track the ICE Semiconductor Index, an index composed of U.S.-listed equities in the semiconductor sector. About 79% of the fund’s holdings are allocated to semiconductor stocks, with nearly all of the remainder focused on semiconductor equipment companies. The fund is fairly concentrated across its holdings, with the top 15 positions accounting for more than 76% of invested assets. The top holdings of SOXX include Broadcom Inc.; Advanced Micro Devices Inc. (AMD); and NVIDIA Corp. (NVDA), all of which manufacture semiconductors and similar products.
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