Technology sector exchange-traded funds (ETFs) buy and sell the shares of manufacturers and service providers of electronics and information technologies that comprise the technology sector. Technological solutions in this sector range from consumer goods to enterprise software. The shares of these companies typically trade at high earnings multiples compared to other sectors and have been known to drive market cycles frequently. Companies with significant market capitalization, such as Apple Inc. (AAPL), Microsoft Corp. (MSFT), and Alphabet Inc. (GOOG), as well as small-cap and micro-cap companies, contribute to the sector’s outlook and growth.
- The technology sector underperformed the broader stock market over the past year.
- The technology exchange-traded funds (ETFs) with the best one-year trailing returns are XLK, TDIV, and TDV.
- The top holdings of these ETFs are Apple Inc., International Business Machines Corp., and Corning Inc., respectively.
There are 74 technology ETFs that trade in the United States, excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets under management (AUM). The sector as represented by the S&P 500 Information Technology Sector Index underperformed the broader market. The benchmark sector index posted a 12.6% one-year trailing return as compared with the S&P 500’s total return of 13.4% as of Feb. 14, 2022.
Due to supply chain constraints caused by the pandemic, several semiconductor companies are facing a shortage of chips, and this impacts ETFs that have positions in this sector. The best technology ETF for the second quarter (Q2) of 2022 is the Technology Select Sector SPDR Fund (XLK).
We will look at the top three technology ETFs below. All numbers reported are as of Feb. 14, 2022.
- Performance Over One-Year: 12.6%
- Expense Ratio: 0.10%
- Annual Dividend Yield: 0.67%
- Three-Month Average Daily Volume: 13,524,775
- Assets Under Management: $45.9 billion
- Inception Date: Dec. 16, 1998
- Issuer: State Street
XLK targets the Technology Select Sector Index and is broadly representative of the technology sector of the S&P 500 Index. The fund focuses on companies involved in technology hardware, storage, and peripherals; software; communications equipment; semiconductors and semiconductor equipment; and a variety of related services. Software companies represent the largest portion of the portfolio at just under a third, followed by technology hardware, storage, and peripherals, and semiconductors and semiconductor equipment stocks. XLK is highly concentrated in the top holdings, with the top two positions accounting for more than 46% of the portfolio. The top three holdings of the fund include Apple Inc. (AAPL), Microsoft Corp. (MSFT), and NVIDIA Corp. (NVDA). The first two of these are major technology conglomerates, and the third is a chip and graphics processing unit manufacturer.
- Performance Over One-Year: 11.8%
- Expense Ratio: 0.50%
- Annual Dividend Yield: 1.78%
- Three-Month Average Daily Volume: 106,048
- Assets Under Management: $1.8 billion
- Inception Date: Aug. 13, 2012
- Issuer: First Trust
TDIV targets the NASDAQ Technology Dividend Index, an index of technology and telecommunications companies listed on the NASDAQ, the New York Stock Exchange (NYSE), or NYSE Amex. To be included in the index, companies must meet minimum thresholds for market capitalization, average daily dollar trading volume, and yield, and must also have paid a common dividend within the past 12 months. Technology stocks account for more than three-quarters of the portfolio, including semiconductor stocks, which make up more than 35% of invested assets, followed by technology hardware, storage, and peripherals, and software. The top holdings of TDIV include International Business Machines Corp. (IBM), a multinational technology corporation; Broadcom Inc. (AVGO), a maker of semiconductor and infrastructure software products; and Apple.
- Performance Over One-Year: 10.5%
- Expense Ratio: 0.45%
- Annual Dividend Yield: 1.11%
- Three-Month Average Daily Volume: 12,147
- Assets Under Management: $110.7 million
- Inception Date: Nov. 5, 2019
- Issuer: ProShares
TDV targets the S&P Technology Dividend Aristocrats Index, comprised of established technology-related companies that have consistently raised their dividends for at least seven years. The companies in the index generally have solid fundamentals and a long track record of profit and growth. The large-cap growth fund's largest holdings are in these sectors: data processing and outsourced services companies; semiconductors; and technology hardware, storage, and peripheral. The top holdings of TDV include Corning Inc. (GLW), a specialty glass and ceramics company specializing in industrial and scientific applications; Badger Meter Inc. (BMI), a water metering technology company; and PetMed Express Inc. (PETS), an online pet pharmacy.
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