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, in recent years, often 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 OGIG.
  • The top holdings for these ETFs are Tesla, Tesla, and Amazon respectively.

Over the past year, the tech sector has significantly outperformed the broader market, with the benchmark Technology Select Sector SPDR ETF (XLK) returning 35.5% versus the S&P 500's 8.3%. Therefore it's no surprise that there are 55 technology exchange-traded funds (ETFs), not including 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 sector ETF for Q3 2020 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 June 23, 2020.

ARK Next Generation Internet ETF (ARKW)

  • 1-Year Trailing Total Return: 67.0%
  • Expense Ratio: 0.76%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 351,720
  • Assets Under Management: $1.3 billion
  • Inception Date: September 30, 2014
  • Issuing Company: ARK Investment Management

The ARK Next Generation Internet ETF is an actively-managed fund, therefore it 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: 62.8%
  • Expense Ratio: 0.75%
  • Annual Dividend Yield: 0.53%
  • 3-Month Average Daily Volume: 990,683
  • Assets Under Management: $4.7 billion
  • Inception Date: October 31, 2014
  • Issuing Company: ARK Investment Management

ARKK is the flagship actively-managed fund at ARK Invest 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 tech 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.

O'Shares Global Internet Giants ETF (OGIG)

  • 1-Year Trailing Total Return: 51.1%
  • Expense Ratio: 0.48%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 182,511
  • Assets Under Management: $253.2 million
  • Inception Date: June 5, 2018
  • Issuing Company: O'Shares

OGIG tracks the O'Shares Global Internet Giants Index, a proprietary index developed by O'Shares. O'Shares constructs the index by choosing companies that get most of their revenue from internet technology or e-commerce and fit certain quality and growth factor rules. The fund's largest holdings are Amazon.com Inc. (AMZN), the e-commerce giant; Alibaba Group Holding Ltd. (BABA), fellow e-commerce titan; and Tencent Holdings Ltd. (TCEHY) the social media and video game conglomerate.