The earnings season and the momentum in the economy have led the tech sector higher again, driven by strong industry players like Microsoft (NASDAQ:MSFT | MSFT Price Prediction) and NVIDIA (NASDAQ:NVDA). While it can be tough to keep up with the changing market trends, you can choose to focus on a single sector to make the most of the upside potential. If you’re focusing on one sector, you’ll need to research and identify the stocks to buy and it may not become a winner in the long term.
This is why exchange-traded funds (ETFs) are smart investors’ top choice. To focus on a single sector, choose the fund that is inclined to the sector and scan its holdings. If you want to make the most of the growing demand of software, artificial intelligence chips, and hardware, consider low-cost technology ETFs for explosive growth.
Here are three tech-focused ETFs worth considering.
Vanguard Information Technology ETF
The Vanguard Information Technology ETF (NASDAQ:VGT) is an ideal way to get exposure to the top tech titans, including Nvidia, Microsoft, Apple, and Broadcom. The fund holds more tech companies than you’d find in an S&P 500. It is a passively managed fund that solely focuses on tech companies and allows you to own elite giants at a low cost.
Exchanging hands for $700, VGT is up 12.6% year-to-date and 22% in 12 months, faring better than the S&P 500. It holds 317 stocks, and about half of the fund is invested in the above-mentioned four companies. The sector allocation is as follows:
- Semiconductors: 31.60%
- Systems software: 22%
- Application software: 14.80%
- Hardware, storage, and distribution: 14.70%
The top 10 stocks make up 60% of the portfolio and are dominated by Nvidia, with the highest weightage of 18%. It also includes other companies like Tesla, Amazon, and Meta Platforms, but with a lower weightage. Companies are increasing their AI spending, and Nvidia and Broadcom are set to benefit from the same. These giants have reported impressive second-quarter results and have an solid portfolio of clients.
Buying this ETF instead of one of these stocks will give you exposure to various industries, including gaming, consumer services, and cloud infrastructure. The technology sector has remained the best-performing over the last decade, which helped VGT generate 22.16% returns in 1 year and 23.98% in 5 years. The fund has an expense ratio of 0.09% and a 30-day SEC yield of 0.42%. VGT is poised for explosive growth over the next three years.
Invesco QQQ Trust ETF
The Invesco QQQ Trust (NASDAQ:QQQ) is the second most traded across the U.S., and follows the Nasdaq 100. Compared to VGT, QQQ has only 60% exposure to the tech sector, which allows you to own stocks across other sectors, too.
QQQ holds 100 stocks, and the top 10 include the Magnificent Seven. It is a tech-heavy ETF with the top 10 making up 52% of the fund. Its highest allocation is in Nvidia at 10%. The sector allocation is as follows:
- Information Technology: 60.84%
- Consumer Discretionary: 19.44%
- Healthcare: 4.82%
- Industrials: 4.35%
The fund’s performance has been exceptionally impressive over the last few years, driven by large technology stocks. If you think that the tech sector will continue to rule the industry, this ETF won’t disappoint you. The Magnificent Seven are the biggest industry players, and they have the potential to generate impressive returns, which is where QQQ is set to benefit.
Exchanging hands for $577, QQQ is up 13.5% year-to-date and 21% in 12 months. It has consistently beaten the market since its inception. Its NAV is up over 100% in five years. Over a 3-year period, QQQ was up 82% while the S&P 500 index jumped 60%. The fund has generated an annualized return of 20.57% in a year and 22.44% in 3 years.
It is highly likely that the ETF will continue to generate strong long-term returns and could outperform the S&P 500.
iShares U.S. Technology ETF
The iShares U.S. Technology ETF (NYSEARCA:IYW) gives exposure to U.S. electronics, computer hardware, and software companies. It is a tech-focused fund with an expense ratio of 0.39%.
The fund has generated a total return of 15.41% in a year and 29.92% in 3 years. It holds 140 stocks, and the top 10 include the Magnificent Seven. The sector allocation is as follows:
- Software and services: 38.23%
- Semiconductors and semiconductor equipment: 33.10%
- Tech hardware and equipment: 17.49%
- Media and entertainment: 9.30%
The top 10 stocks make up 67% of the fund. Besides the Magnificent Seven, it includes Oracle (NYSE: ORC), Palantir (NYSE: PLTR) and Advanced Micro Devices (NASDAQ: AMD) in the top 10. The fund also holds stocks of companies that have made big moves in the tech space, like AppLovin (NASDAQ: APP), Super Micro Computer (NASDAQ: SMCI) and Dell Technologies (NYSE: DELL).
Year-to-date, the fund has added 15.29% and is up 22.63% in 12 months. Exchanging hands for $183.95, IYV is close to the 52-week high of $186.55. If you want to make the most of the tech sector without buying individual stocks, IYV is worth considering.
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