Technology is evolving rapidly with increasing demand and digital transformation worldwide. Therefore, adding tech ETFs to the portfolio can offer a broad spectrum diversification to investors and allow them to yield from the innovations and market growth.
Given the backdrop, let’s look at fundamentally solid tech ETFs, iShares U.S. Technology ETF (IYW), The Technology Select Sector SPDR Fund (XLK), and Vanguard Information Technology Index Fund ETF Shares (VGT) for a diversified portfolio.
The tech industry is undergoing a period of remarkable growth and change, with rapid innovations reshaping industries and redefining both consumer behavior and business operations. Tech companies are leading advancements in areas such as AI and cloud computing, driving transformation across sectors and setting new standards for the future.
For instance, for the past three years, Generative AI has emerged as a key focus in the tech sector, with major companies heavily investing in technology. This surge in interest, according to McKinsey Technology Council analysis, has unlocked innovation in related trends like robotics and immersive reality, pushing the boundaries of tech advancement.
Innovation is further propelling the AI revolution across segments like applied AI and industrialized machine learning. Gartner (IT) predicts a significant rise in global IT spending, projecting $5.26 trillion by 2024, up 7.5% from 2023, with Generative AI poised as a major opportunity for software companies.
Amid this, investing in quality tech ETFs could provide exposure to a significant potential segment, positioning investors for solid returns. These ETFs offer diversification by investing in companies engaged in the technology sector.
Given these encouraging trends, let’s look at the fundamentals of the top three Technology Equities ETFs, beginning with #3.
ETF #3: iShares U.S. Technology ETF (IYW)
Launched by BlackRock, Inc. (BLK) and managed by BlackRock Fund Advisors, IYW focuses on investing in information technology sectors. It aims to mirror the Russell 1000 Technology RIC 22.5/45 Capped Index through a representative sampling approach, targeting diversified exposure across tech companies.
With $18.15 billion in assets under management (AUM), IYW’s top holdings are Apple Inc. (AAPL) with a 15.77% weighting, Microsoft Corporation (MSFT) at 15.69%, and NVIDIA Corporation (NVDA) at 13.22%. The fund has a total of 142 holdings, with its top 10 assets comprising 63.15% of its AUM.
IYW has an expense ratio of 0.39%, lower than the category average of 0.58%. Its fund inflows were $106.14 million over the past three months and $2.76 billion over the past year.
IYW pays an annual dividend of $0.32, which translates to a 0.21% yield at the current price level.
The ETF has gained 11.7% over the past six months and 38.4% over the past year to close the last trading session at $149.89. The fund’s NAV was $147.91 as of September 19, 2024.
IYW’s sound fundamentals are reflected in its POWR Ratings. The fund has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
IYW has an A grade for Trade and Buy & Hold. Of the 119 ETFs in the Technology Equities ETFs group, it is ranked #3.
Click here to see all the IYW ratings.
ETF #2: The Technology Select Sector SPDR Fund (XLK)
Launched by State Street Global Advisors, Inc. and managed by SSGA Funds Management, Inc., XLK invests in companies within the information technology sectors. The fund aims to track the performance of the Technology Select Sector Index, using a full replication technique to closely mirror the index’s composition and performance.
With an AUM of $68.04 billion, XLK’s top holdings include MSFT with a 22.33% weighting, followed by NVDA at 19.63%, and AAPL at 4.77%.
The ETF has a total of 69 holdings, with its top 10 assets comprising 65.92% of its AUM. XLK’s expense ratio is 0.09%, lower than the category average of 0.58%. Over the past year, its fund inflows were $3.93 billion.
XLK pays an annual dividend of $1.52, which translates to a 0.68% yield at the current price level. Moreover, the fund’s dividend payouts have increased at a CAGR of 8.1% over the past five years.
XLK has surged 7.8% over the past six months and 32.1% over the past year to close the last trading session at $223.62. The fund’s NAV was $223.52 as of September 19, 2024.
XLK’s POWR Ratings reflect its strong prospects. The fund has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
XLK has an A grade for Trade and Buy & Hold. Within the Technology Equities ETFs group, it is ranked #2 of the 119 ETFs.
To access all XLK’s POWR Ratings, click here.
ETF #1: Vanguard Information Technology Index Fund ETF Shares (VGT)
Launched and managed by The Vanguard Group, Inc., VGT invests in companies within the information technology sectors. The fund aims to track the performance of the MSCI US Investable Market Index (IMI)/Information Technology 25/50. It achieves this by using a full replication technique to closely replicate the index.
The fund has an AUM of $76.64 billion. Its top holdings include AAPL with a 17.22% weighting, followed by MSFT at a 15.84% weighting, and NVDA at 14.07%. VGT has a total of 320 holdings, with the top 10 assets comprising 61.07% of its AUM.
The fund has an expense ratio of 0.10%, compared to the category average of 0.58%. Over the past six months, VGT's fund inflows came in at $3.68 billion and $6.1 billion over the past year.
VGT pays an annual dividend of $3.70, which translates to a 0.64% yield at the current price level. The fund’s dividend payouts have grown at a CAGR of 7.9% over the past five years.
VGT has gained 11.4% over the past six months and 35.7% over the past year to close the last trading session at $579.65. The fund has a NAV of $579.76 as of September 19, 2024.
VGT’s POWR Ratings reflect its strong outlook. The ETF has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Buy & Hold and Trade. The fund has topped 119 ETFs in the Technology Equities ETFs group.
To access all the POWR Ratings for VGT, click here.
What To Do Next?
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VGT shares fell $1.41 (-0.24%) in premarket trading Friday. Year-to-date, VGT has gained 20.21%, versus a 20.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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