The S&P 500 is up more than 25% year to date. At the same time, tech stocks remain one of the hottest portions of the market—continuing a trend that in September 2018 caused the S&P Dow Jones Indices to relocate 23 popular tech heavyweight stocks to a newly created communications services sector.
Tech-focused exchange-traded funds (ETFs) have been riding the highs of this powerful sector. The top tech ETFs have dramatically outperformed the S&P so far this year, with double-digit gains a hallmark of the space. Let's explore two of the top tech ETFs based on year-to-date performance, as well as a newcomer that may take advantage of the communications services sector shift.
All information is current as of Nov. 30, 2019.
- Technology stocks remain one of the market's hottest performing sectors, and tech-focused ETFs are a good way for retail investors to play.
- Two of the largest and best-known tech ETFs are Technology Select Sector SPDR and Vanguard Information Technology ETF.
- A third ETF, the Communications Services Select Sector SPDR Fund, was formed to exploit the S&P re-classification of some companies into a new communications services sector in 2018.
Technology Select Sector SPDR Fund (XLK)
The Technology Select Sector SPDR Fund is one of the largest tech-centered ETFs. With $3.34 billion in net assets under management (AUM), XLK sports an average daily volume of 9.8 million and an expense ratio of 0.13%. This ETF offers broad exposure to the U.S. technology sector. It generally does not include small-cap or many mid-cap companies, helping it to reduce volatility, according to ETF.com.
Considering that XLK is relatively cheap (a net asset value of $88), sizable and highly liquid, along with its YTD return of 36.34%, the fund is a smart buy for any tech-focused ETF investor.
Vanguard Information Technology ETF (VGT)
The Vanguard Information Technology ETF is "one of the most diverse market-cap-weighted technology ETFs available," per ETF.com. Unlike XLK, VGT includes small- and micro-cap stocks in its AUM basket of $24.89 billion. Nonetheless, it enjoys high liquidity (its average trading volume is 438,542). With a net expense ratio of 0.10%, it also keeps all-in costs quite low for investors.
VGT has returned 35.37% YTD.
Because the tech giants Facebook, Amazon, Netflix, and Google, known by the acronym FANG, were all reclassified into the S&P's new communications services sector, financial pundits joked the old technology sector had been "de-FANGed."
Communications Services Select Sector SPDR Fund (XLC)
One of the newest ETFs exploring in this area, the Communications Services Select Sector SPDR Fund was launched in June 2018 in response to the upcoming changes to tech equities' sector classifications. XLC includes all the members of the former telecom sector, plus media and entertainment companies. This means that XLC's basket includes some highly popular "tech" names as well as stocks in related sectors.
Nearly a year and a half old, XLC sports just over $6 billion in AUM, and maintains an expense ratio of 0.13%. It has returned 23.43% year to date, and is the "bargain" of our group, with a NAV of $52.56 currently.
The Bottom Line
While tech ETFs have been massively successful so far this year, that's no reason for investors to get complacent. Watch these ETFs carefully, as their performance can be volatile.