The technology sector includes companies focused on the research, development, and sale of a broad range of hardware and software used by consumers and businesses. It includes giants such as Apple Inc. (AAPL) and Microsoft Corp. (MSFT), as well as many fast-growing younger companies. The sector has been a major driver of overall gains in the stock market.

Key Takeaways

  • The technology sector has significantly outperformed the broader market over the past year.
  • The ETFs with the best 1-year trailing total return are ARKW, ARKK, and KWEB.
  • The top holdings for these ETFs are Tesla in two of the three funds, and Alibaba Group in the third.

Over the past year, the tech sector has significantly outperformed the broader market, with the benchmark Technology Select Sector SPDR ETF (XLK) posting a total return of 45.1% versus the S&P 500's 18.1%. There are 56 technology exchange-traded funds (ETFs), excluding leveraged ETFs, inverse ETFs, or ETFs with less than $50 million in assets under management (AUM). Despite the success of many large tech companies, less-well-known enterprises can carry more investment risk. ETFs can be a useful way to manage this risk.

The best technology ETF, based on performance in the past year, is the ARK Next Generation Internet ETF (ARKW). Below, we'll look at the top 3 technology ETFs as measured by 1-year trailing total returns. All numbers are as of August 12, 2020.

ARK Next Generation Internet ETF (ARKW)

  • 1-Year Trailing Total Return: 96.0%
  • Expense Ratio: 0.76%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 588,743
  • Assets Under Management: $1.9 billion
  • Inception Date: September 30, 2014
  • Issuing Company: ARK Investment Management

The ARK Next Generation Internet ETF is an actively-managed fund and, thus, does not track a particular index. ARKW aims to identify companies that will profit from developments in cloud computing, artificial intelligence (AI), financial technology, and similar innovations. Its largest holdings are Tesla Inc. (TSLA), the electric car company; Square Inc. (SQ), the mobile payments company; and Roku Inc. (ROKU), the digital streaming equipment maker.

ARK Innovation ETF (ARKK)

  • 1-Year Trailing Total Return: 85.5%
  • Expense Ratio: 0.75%
  • Annual Dividend Yield: 0.46%
  • 3-Month Average Daily Volume: 1,489,800
  • Assets Under Management: $6.5 billion
  • Inception Date: October 31, 2014
  • Issuing Company: ARK Investment Management

ARKK is the flagship fund at ARK Invest. It's actively-managed and focuses on stocks of varying market caps in the U.S. Like sister fund ARKW, the ARK Innovation ETF invests in companies on the leading edge of technology. In particular, ARKK buys companies poised to profit from "disruptive innovation," including DNA technologies, automation, and energy innovation. The top holdings for ARKK are currently Tesla; Invitae Corp. (NVTA), the medical genetics company; and Square.

KraneShares CSI China Internet ETF (KWEB)

  • 1-Year Trailing Total Return: 71.5%
  • Expense Ratio: 0.76%
  • Annual Dividend Yield: 0.06%
  • 3-Month Average Daily Volume: 2,076,195
  • Assets Under Management: $2.7 billion
  • Inception Date: July 31, 2013
  • Issuing Company: KraneShares

KWEB offers pureplay exposure to Chinese software and information technology companies. The multi-cap fund follows a blended strategy and tracks the CSI China Overseas Internet Index, comprised of 50 overseas Internet-related companies. The ETF's top three holdings include Alibaba Group Holding Ltd. (BABA), a multinational technology company specializing in e-commerce, internet infrastructure, and online financial services; Meituan Dianping (3690), a web-based shopping platform; and Tencent Holdings Ltd. (700), a technology company offering social networking, gaming, payments, web portals, e-commerce, and more.