Technological advancements and their widespread utilization across sectors have positioned the tech industry for immense growth in the coming years. Hence, it seems wise to invest in robust tech ETFs Vanguard Information Technology ETF (VGT), Technology Select Sector SPDR Fund (XLK), and ARK Innovation ETF (ARKK) today.
Let us understand this in detail.
Industries are actively leveraging technology to engage customers, drive innovation, and boost efficiency. Numerous firms are undertaking long-term digital transformation initiatives, a trend likely to gain momentum with the growing adoption of hybrid work environments.
In particular, cloud computing has been increasingly disrupting enterprises as they are shedding their in-house hardware-based architecture in favor of cloud-based systems. Approximately 60% of corporate workloads have already been moved to the cloud, and that figure is projected to rise to roughly 70% by 2025.
Building upon existing technologies such as applied Artificial Intelligence (AI) and industrialized machine learning, generative AI has also been making significant strides in transforming the tech space. With the potential to add as much as $4.4 trillion in economic value, it has been enhancing productivity through targeted use cases and broader applications.
Other technological advancements, such as next-generation software development, advanced connectivity, immersive-reality technologies, and quantum technologies, are further bolstering the sector’s growth. As per ReportLinker, the information technology market is expected to grow at a CAGR of 7.9% and reach $12 trillion by 2027.
Against this backdrop, it could be wise to invest in quality tech ETFs VGT, XLK, and ARKK which hold the potential to generate solid returns.
Let’s now delve into the fundamentals of the featured ETFs.
Vanguard Information Technology ETF (VGT)
Launched and managed by The Vanguard Group, Inc., VGT invests in stocks of information technology companies across diversified market capitalization. It focuses on both growth and value stocks and tracks the MSCI US Investable Market Index (IMI)/Information Technology 25/50 through a full replication technique.
With $53.40 billion in Assets Under Management (AUM), VGT’s top holding is Apple Inc. (AAPL) which has a 21.67% weighting in the fund. It is followed by Microsoft Corporation (MSFT) at 21.10% and NVIDIA Corporation (NVDA) at 5.18% weighting. The fund has a total of 327 holdings. It has a beta of 1.16.
VGT has an expense ratio of 0.10%, lower than the category average of 0.55%. Its net outflows came in at $366.09 million over the past three months and $1.63 billion over the past year. The ETF’s NAV was $454.76 as of July 31, 2023.
VGT pays a $3.08 annual dividend yielding 0.68% at the prevailing price level. Its dividend payments have grown at a CAGR of 12.4% over the past five years and its four-year average dividend yield is 0.88%. The fund has gained 43.8% year-to-date to close the last trading session at $454.81.
VGT’s POWR Ratings reflect this strong outlook. The ETF’s overall A rating equates 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.
VGT has an A grade for Trade and Buy & Hold. It has topped the A-rated 119-ETF Technology Equities ETFs group. Click here to see all of VGT’s POWR Ratings.
Technology Select Sector SPDR Fund (XLK)
XLK, launched by State Street Global Advisors, Inc. and managed by SSGA Funds Management, Inc., targets information technology sector companies and invests in growth and value stocks across diverse market capitalization. The fund aims to replicate the Technology Select Sector Index's performance through a full replication technique.
XLK has $51 billion in AUM. It has 67 holdings in total. AAPL has a 23.17% weighting in the fund as its top holding, followed by MSFT and NVDA at 21.96% and 5.03%, respectively. The next in line is Broadcom Inc. (AVGO) at 4.46%.
The ETF’s net inflows were $433.38 million over the past three months. In addition, its 0.10% expense ratio compares favorably to the 0.55% category average. XLK’s NAV was $178.32 as of July 31, 2023. It has a beta of 1.14.
The ETF pays a $1.36 dividend annually, yielding 0.76% at the current price level. Its four-year average dividend yield stood at 0.95%, and its dividends have grown at an 8.1% CAGR over the past five years. XLK has gained 44.7% year-to-date, closing the last trading session at $178.35.
It’s no surprise that XLK has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The ETF has an A grade for Trade and Buy & Hold.
Within the Technology Equities ETFs group, it is ranked #2 out of 119 ETFs. Click here to access all the POWR Ratings for XLK.
ARK Innovation ETF (ARKK)
ARKK, launched and managed by ARK Investment Management LLC, focuses on public equity markets globally. The fund invests in socially conscious companies that promote environmental responsibility. Utilizing fundamental and quantitative analysis, it employs a bottom-up and top-down stock-picking approach to construct its portfolio.
The fund has $8.62 billion in AUM. Its top holdings are Tesla, Inc. (TSLA) with a 10.31% weighting, Roku, Inc. (ROKU) at 8.94%, and Coinbase Global, Inc. (COIN) at 7.90%. The fund has a total of 31 holdings.
ARKK has an expense ratio of 0.75%. The fund’s net inflows were $212.37 million over the past month. Moreover, its NAV stood at $50.42 as of July 31, 2023. It has a beta of 1.64. Year-to-date, ARKK has gained 65.6% to close the last trading session at $50.45.
ARKK’s POWR Ratings are consistent with its strong fundamentals. The ETF has an overall A rating, translating to a Strong Buy in our proprietary rating system.
It also has an A grade for Trade and Buy & Hold. It is ranked #5 among 119 ETFs within the same group. To access all of ARKK’s POWR Ratings, click here.
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VGT shares were trading at $454.51 per share on Tuesday afternoon, down $0.30 (-0.07%). Year-to-date, VGT has gained 42.81%, versus a 20.18% 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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