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), Microsoft Corp. (MSFT), and Amazon.com Inc. (AMZN), as well as many fast-growing younger companies. The sector has been a major driver of overall gains in the stock market. The acceleration of the migration to online commerce amid the COVID-19 pandemic has intensified the importance of technology companies.

Key Takeaways

  • The technology sector 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 holding of the first two ETFs is Tesla, and that of the third is Alibaba Sponsored ADR.

There are 57 distinct technology ETFs that trade in the U.S., excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets under management (AUM). The technology sector, as measured by the Technology Select Sector SPDR ETF (XLK), has dramatically outperformed the broader market with a total return of 39.9% over the past 12 months compared to the S&P 500's total return of 14.0%, as of November 4, 2020. The best-performing technology ETF, based on performance over the past year, is the ARK Next Generation Internet ETF (ARKW). We examine the top 3 best technology ETFs below. All numbers below are as of November 5, 2020.

ARK Next Generation Internet ETF (ARKW)

  • Performance over 1-Year: 127.6%
  • Expense Ratio: 0.76%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 735,924
  • Assets Under Management: $2.9 billion
  • Inception Date: September 30, 2014
  • Issuer: ARK Investment Management

ARKW provides exposure to technology stocks that define the "Next Generation Internet". That means stocks of companies engaged in artificial intelligence (AI), big data, cloud computing, cybersecurity, and blockchain technology. The ETF is focused on large-cap growth stocks within the U.S. technology sector. About 39% of the fund is allocated to information technology (IT) stocks, while 33% is allocated to communication services, and 18% to the consumer discretionary sector. The fund's top three holdings include Tesla Inc. (TSLA), an electric vehicle and clean energy company; class A shares of Roku Inc. (ROKU), a provider of wireless enabled devices that stream audio and video content from the Internet; and class A shares of Square Inc. (SQ), a provider of mobile payment solutions.

ARK Innovation ETF (ARKK)

  • Performance over 1-Year: 116.4%
  • Expense Ratio: 0.75%
  • Annual Dividend Yield: 0.41%
  • 3-Month Average Daily Volume: 2,475,250
  • Assets Under Management: $9.9 billion
  • Inception Date: October 31, 2014
  • Issuer: ARK Investment Management

ARKK provides exposure to companies engaged in "disruptive innovation", such as AI, DNA technologies, energy innovation, automation and manufacturing, financial technology, and cloud computing. The ETF is focused on growth stocks of various market capitalizations within the U.S. tech sector. Nearly 36% of the fund is allocated to healthcare stocks, while 29% is allocated to information technology, and 17% to communication services. The fund's top three holdings include Tesla; Invitae Corp. (NVTA), a provider of genetic information to the healthcare industry; and class A shares of Square.

O'Shares Global Internet Giants ETF (OGIG)

  • Performance over 1-Year: 101.0%
  • Expense Ratio: 0.48%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 221,773
  • Assets Under Management: $487.0 million
  • Inception Date: June 5, 2018
  • Issuer: O'Shares

OGIG tracks the O'Shares Global Internet Giants Index, which is comprised of global Internet technology and e-commerce equities that exhibit the potential for quality and growth. The ETF is focused on large-cap growth stocks across developed markets, but is heavily weighted to U.S. equities, which receive a 61% allocation within the portfolio. The next biggest country weighting is China, with a 22% allocation. The fund's top three holdings include Sponsored ADRs of Alibaba Group Holding Ltd. (BABA), a China-based e-commerce and Internet infrastructure company; Amazon.com Inc. (AMZN), a multinational e-commerce and cloud computing company; and Tencent Holdings Ltd. (700:HKG), a China-based multinational technology conglomerate offering e-commerce and other Internet-related services and products.

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