Technology is rapidly evolving with increasing demand and digital transformation worldwide. Therefore, adding technology ETFs to the portfolio can offer a broad spectrum diversification to investors and allow them to yield from the solid development and growth of the market.
Given the backdrop, let’s look at the fundamentally solid Technology Equities ETFs, The Technology Select Sector SPDR Fund (XLK), iShares U.S. Technology ETF (IYW), and Vanguard Information Technology Index Fund ETF Shares (VGT) for a diversified tech portfolio.
For the past three years, Generative AI (gen AI) has been a standout among major companies as they continually invest in the technology and explore its potential. According to McKinsey Technology Council analysis, this uptick has resulted in unlocking the innovative potential of other interconnected trends like robotics and immersive reality.
Innovation has further accelerated the AI revolution in the segments such as gen AI, applied AI, and industrializing machine learning. Gartner predicts worldwide IT spending to reach $5.26 trillion in 2024, up 7.5% from 2023 with generative AI being a major prospect for software companies.
Further, the information and communication technology (ICT) market which accounts as one of the largest industries in the world valued nearly $6 trillion in 2023 and with the rising prevalence and demand for technology in today’s dynamics, it is expected to grow exponentially driven by big data and analytics, social, mobile, and cloud computing.
Moreover, the information technology market is poised to value $12.42 trillion by 2028, exhibiting growth at a CAGR of 8.3%. The growth in the forecast period is attributable to globalization of IT services, digital transformation, e-commerce evolution, and cybersecurity innovations.
Given these encouraging trends, let’s look at the fundamentals of the top three Technology Equities ETFs, beginning with number 3.
ETF #3: The Technology Select Sector SPDR Fund (XLK)
XLK was launched by State Street Global Advisors, Inc. It is managed by SSGA Funds Management, Inc. The fund invests in stocks of companies operating across information technology sectors. It seeks to provide exposure to companies from segments like technology hardware, storage, and peripherals, software, communications equipment, semiconductors and semiconductor equipment.
The fund seeks to track the performance of the Technology Select Sector Index. With assets under management (AUM) of $69.69 billion. XLK’s top holdings include Microsoft Corporation (MSFT) with a 21.22% weighting, followed by NVIDIA Corporation (NVDA) at 20.92%, and Apple Inc. (AAPL) and Broadcom Inc. (AVGO) at 4.91% and 4.35%, respectively.
The ETF has a total of 69 holdings, with its top 10 assets comprising 65.84% of its AUM. XLK’s expense ratio is 0.09%, lower than the category average of 0.58%. Over the past month, its fund inflows were $1.46 billion and $5.32 billion over the past year.
XLK pays an annual dividend of $1.52, which translates to a 0.69% yield at the current price level. Moreover, the fund’s dividend payouts have increased at a CAGR of 12.2% over the past three years. Notably, XLK has paid dividends for 15 consecutive years.
XLK has surged 7.6% over the past six months and 30% over the past year to close the last trading session at $221.15. It has a beta of 1.14. The fund’s NAV was $221.10 as of August 26, 2024.
XLK’s POWR Ratings reflect solid prospects. The fund has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
XLK has an A grade for Trade and a B grade for Buy & Hold. Within the Technology Equities ETFs group, it is ranked #51 of the 119 ETFs.
To access all XLK’s POWR Ratings, click here.
ETF #2: iShares U.S. Technology ETF (IYW)
IYW seeks to track the investment results of an index composed of U.S. equities in the technology sector. The fund provides broad exposure to the US technology segment, tracking a diversified, market-cap-weighted index. The fund tracks the Dow Jones U.S. Technology Index.
With $18.80 billion in AUM, IYW’s top holdings are AAPL with a 15.77% weighting, MSFT at 14.77%, and NVDA and Meta Platforms Inc Class A (META) at 14.69% and 3.89%, respectively.
The fund has a total of 142 holdings, with its top 10 assets comprising 63.36% of its AUM. It has an expense ratio of 0.40%, lower than the category average of 0.58%. IYW fund inflows were $1.46 billion over the past six months and $3.21 billion over the past year.
IYW pays an annual dividend of $0.32, which translates to a 0.21% yield at the current price level. Moreover, the fund’s dividend payouts have increased at a CAGR of 1.9% over the past ten years. IYW has paid dividends for 16 consecutive years.
IYW has gained 11.8% over the past six months and 37.6% over the past year to close the last trading session at $147.96. It has a beta of 1.15. The fund’s NAV was $147.90 as of August 26, 2024.
IYW’s sound fundamentals are reflected in its POWR Ratings. The fund has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The fund has an A grade for Trade, and Buy & Hold. Of the 119 ETFs in the Technology Equities ETFs group, IYW is ranked #2.
Click here to see all the IYW ratings.
ETF #1: Vanguard Information Technology Index Fund ETF Shares (VGT)
VGT is managed by The Vanguard Group, Inc. The fund invests in stocks of companies operating across information technology sectors. The fund invests in growth and value stocks of companies across diversified market capitalization. It seeks to track the performance of the MSCI US Investable Market Index (IMI) 25/50 Information Technology index.
The fund has an AUM of $76.63 billion. Its top holdings include AAPL with a 17.22% weighting, followed by MSFT at a 15.84% weighting, and NVDA and AVGO at 14.07% and 4.75%, respectively. VGT has a total of 320 holdings, with the top 10 assets comprising 61.07% of its AUM.
The fund has an expense ratio of 0.10%, compared to the category average of 0.58%. Over the past six months, VGT fund inflows came in at $3.63 billion and $6.09 billion over the past year. Also, it has a beta of 1.16.
VGT pays an annual dividend of $3.70, which translates to a 0.64% yield at the current price level. The fund’s dividend payouts have grown at a CAGR of 12.3% over the past three years. Also, VGT has paid dividends for 18 consecutive years.
VGT has gained 11.7% over the past six months and 33.5% over the past year to close the last trading session at $574.52. The fund has a NAV of $574.19 as of August 26, 2024.
VGT’s POWR Ratings reflect its strong outlook. The ETF has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
VGT has an A grade for Buy & Hold, and Trade. The fund has topped among 119 ETFs in the same group.
To access all the POWR Ratings for VGT, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
VGT shares were trading at $577.14 per share on Tuesday afternoon, up $2.62 (+0.46%). Year-to-date, VGT has gained 19.69%, versus a 18.94% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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