7 Best Technology ETFs For 2018 And Beyond

| January 17, 2018 | 0 Comments

These technology ETFs could be leaders through the rest of the year

You don’t need me to tell you that technology was the best-performing sector in the S&P 500 last year. The Technology Select Sector SPDR (NYSEARCA:XLK), the largest technology ETF by assets, jumped 34.3% in 2017, easily topping the 21.7% returned by the broader market.

Of course, 2018 is a new year and one that comes with no guarantees that technology stocks will repeat the boffo performances delivered last year. Still, earnings trends, including those for the fourth quarter of 2017, are favorable.

“The number of companies issuing positive EPS guidance in the Information Technology sector for Q4 2017 is 18, which is well above the five-year average (10) for the sector,” according to FactSet data.

For 2018, tech is expected to have the best revenue growth among all S&P sectors and the fourth best earnings growth at 13.2%. Investors can consider the following technology ETFs for potential upside for the rest of 2018.

Technology ETFs: First Trust Cloud Computing ETF (SKYY)

Expense ratio: 0.6% per year, or $60 on a $10,000 investment.

The First Trust Cloud Computing ETF (NASDAQ:SKYY) is six and a half years old and although this technology ETF is home to over $1.4 billion in assets under management, its success has not prompted rival fund issuers to bring a competing product to market.

So, at least for now, SKYY is the only tech ETF dedicated to the cloud computing boom. And yes, data confirm cloud computing is booming. Following 24% growth in 2017, cloud computing is now a $180 billion market, but by some estimates, that number could more than triple to over $554 billion in revenue by 2021.

SKYY, which returned 33.5% last year, holds 30 stocks, including familiar names such as Netflix, Inc. (NASDAQ:NFLX), Facebook Inc (NASDAQ:FB) and Amazon.com, Inc. (NASDAQ:AMZN).

Technology ETFs: Global X FinTech ETF (FINX)

Annual fee: 0.68%

The Global X FinTech ETF (NASDAQ:FINX) is not a pure play tech ETF as the concept of fintech, as the term implies, marries technology and financial services. However, of the 10 industry groups represented in the FINX lineup, three are technology industries and that trio accounts for a massive percentage of this tech ETF’s roster.

The average market value of FINX’s 32 components is $9.44 billion, putting the ETF at the higher end of the mid-cap spectrum. That also implies some FINX member firms are potential takeover targets as large traditional banks look for ways to increase their fintech exposure.

FINX’s assets under management have more than tripled since the end of the third quarter. The ETF is up 57.2% over the past 12 months.

Technology ETFs: PowerShares S&P SmallCap Information Technology Portfolio (PSCT)

Expense ratio: 0.29%

The PowerShares S&P SmallCap Information Technology Portfolio (NASDAQ:PSCT) is the small-cap answer to the aforementioned PSCT. Home to 91 stocks, PSCT tracks the S&P SmallCap 600 Capped Information Technology Index, the technology offshoot of the widely followed S&P SmallCap 600 Index.

This technology ETF is heavily exposed to electronic equipment and semiconductor makers as those industries combine for over 53% of PSCT’s weight. PSCT could be a 2018 redemption story.

The ETF trailed broader small-cap benchmarks last year, but over the past three years, PSCT topped the S&P SmallCap 600 Index by more than 1,800 basis points.

Technology ETFs: KraneShares Emerging Markets Consumer Technology ETF (KEMQ)

Expense ratio: 0.79% annually

The KraneShares Emerging Markets Consumer Technology ETF (NYSEARCA:KEMQ) is still new (it debuted in October) and small (just $2.6 million in assets), but this rookie tech ETF is off to a fast start having returned 9.2% since its debut.

Even with its infant status, KEMQ possesses a very real opportunity set for investors.

“Internet adoption is expanding rapidly within emerging markets at the same time that domestic consumption and retail sales are steadily increasing and frequently taking place online,” according to KraneShares.

KEMQ holdings include JD.com Inc. (NASDAQ:JD), Alibaba Group Holding Ltd.(NYSE:BABA) and Baidu.com (NASDAQ:BIDU).

Technology ETFs: John Hancock Multifactor Technology ETF (JHMT)

Expense ratio: 0.5% per year

The John Hancock Multifactor Technology ETF (NYSEARCA:JHMT) is an alternative to traditional, cap-weighted technology ETFs, which are usually dominated by just a handful of the sector’s biggest names.

Rather than weighting stocks by market value, JHMT employs a multi-factor approach, including smaller cap, lower relative price, and higher profitability, to build its portfolio. Software and semiconductor stocks combine for over half the ETF’s sector weight.

Microsoft Corporation (NASDAQ:MSFT), Facebook and Apple Inc. (NASDAQ:AAPL) are JHMT’s top three holdings, but those stocks combine for 17.2% of the ETF’s weight compared with almost 33% in XLK.

Technology ETFs: First Trust Nasdaq Technology Dividend Index Fund (TDIV)

Expense ratio: 0.5% per year

There was a time when dividends and the technology sector rarely met. Fortunately, that scenario has improved dramatically in recent years to the point that the technology sector is a credible income destination and Apple and Microsoft are among the largest U.S. dividend payers.

The First Trust NASDAQ Technology Dividend Index Fund (NASDAQ:TDIV) is the only ETF dedicated to the theme of technology dividends and what a compelling theme it is.

“On a sector basis, the IHS Markit Dividend Forecasting report predicts that banks are expected to post the largest increase in gross payouts in 2018 when compared with last year (up $26.1bn), followed by industrial goods and services (up $12.6bn), and technology (up $12.6bn),” according to research firm Markit.

Technology ETFs: Guggenheim S&P 500 Equal Weight Technology ETF (RYT)

Expense ratio: 0.4% per year

Considering it lacks the large allocations to big technology names, such as Apple and Facebook, the Guggenheim S&P 500 Equal Weight Technology ETF (NYSEARCA:RYT) showed admirably in 2017, returning 33%.

RYT’s utility in 2018 is twofold. First, should large- and mega-cap tech stocks pullback, RYT would likely perform less poorly than a cap-weighted fund. Second, if smaller tech stocks lead this year, RYT will benefit because the fund tilts toward smaller technology companies.

IT services, semiconductor and software companies combine for about three-quarters of RYT’s roster.

Todd Shriber does not own any of the aforementioned securities.


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