Top Ten Technology ETFs

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 |  Includes: FDN, FXL, IGN, IGV, IYW, PTF, QTEC, SOXX, VGT, XLK
by: David Fry

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The technology sector is where the U.S. still leads the world in product innovation and distribution. Certainly the manufacturing of final products or hardware has moved overseas but world class product design and innovation continues to take place domestically.

During the first quarter of 2012 the technology sector was leading markets higher overall. This was especially so given Apple's (NASDAQ:AAPL) rapid growth and overweighting in many tech indexes. …Apple's high weighting is a door that can swing both ways. When times are good for the company that enhances returns but should the stock price falter the opposite would hold true.

This was the comment I posted from last spring. ETFs with heavy weightings in Apple delivered outsized performance in the first quarter of 2012. However, as I mentioned earlier, the door can swing both ways, and this proved to be true in the fourth quarter of 2012; IYW (NYSEARCA:IYW), VGT (NYSEARCA:VGT) and XLK (NYSEARCA:XLK) for example, fell apart as Apple struggled.

There are nearly three dozen ETFs focused on the technology sector with more on the way. The following analysis features a balanced representation of the ETFs available and includes technology sub-sectors. ETFs are based on indexes tied to well-known index providers including Russell, S&P, Barclays, MSCI, and Dow Jones. Some"enhanced" indexes are also included. They attempt to achieve better performance through more active fund management than conventionally passive ETF investing.

Investors may choose an appropriate ETF from the ETFs listed below to best satisfy the need for index-based investments for their portfolios. Additionally, we've included leveraged long, leveraged short, and inverse ETFs for sophisticated traders and investors wishing to hedge or speculate. These ETFs are available primarily from ProShares and DirexionShares. I urge you to do your homework before engaging in these ETFs.

It's not really fair to rank the ETFs listed below since there are choices between price or market cap weightings, enhanced or conventional indexes, as well as those targeting particular sub-sectors. They're all quite good as far as ETF construction and are thus subject to individual choice and objective.

In my latest ebook, "The Best ETFs: US Equities" I handpick the best ETFs even further in the US Equities space in 26 subcategories, ranging from different market capitalizations and approaches, to sector and subsector-specific ETFs, to dividend and high yield dividend ETFs. This ebook is just the first in a series that aims to help you construct a comprehensive, well-balanced portfolio of ETFs from across the wide spectrum of markets and asset classes available. The next books in the series will focus on overseas ETFs, fixed income ETFs, alternative ETFs, and portfolio construction.

A few ETFs below feature a technical view of conditions from monthly chart views. If interested in seeing current charts for these ETFs, you need look no further than by reading my blog, Dave's Daily. I post many of ETFs on a daily basis using daily and/or weekly charts and if looking for monthly charts, most of these are also featured within my new ebook as mentioned above.

When viewing my charts, my simple recommendation for longer-term investors is that they stay "above" or on the "right-side" of the 12-month simple moving average [MA]. When prices are above the MA, stay long, and when below, remain in cash or short. Investors more interested in a fundamental approach may not care so much about technical issues, instead preferring to buy when prices are perceived as low and sell when high, among other reasons.

You will note that SMH, a popular ETF, is not included in the list below. Previously we had avoided using Merrill Lynch HOLDRS for a variety of reasons. The most important reason why we did this was that HOLDRS were trusts. Constituents in the trust can only be altered through mergers, acquisition, or privatizations. This meant that weightings within the trust would get distorted, leading to undue concentration in just a few companies.

Van Eck has since acquired Merrill Lynch HOLDRS and converted them into ETFs with the approval of the shareholders and over time will no doubt re-weight the constituents of the linked indexes. A good example of this is SMH (Market Vectors Semiconductor ETF), which bears the same ticker symbol and is gradually altering index holdings, as even Intel (NASDAQ:INTC) still dominates. We'll be following SMH eventually as more weightings become equal.


PowerShares Dynamic Technology ETF (PTF)

PTF follows the Dynamic Technology Sector Intellidex Index which is another "enhanced" index modified by quantitative methodologies. The fund was launched in October 2006. The expense ratio is 0.60%. AUM equal $30M making and average daily trading volume is less than 4K shares. (The light volume might serve as a warning that this ETF may not succeed since this condition has been chronic.) As of late February 2012 the annual dividend yield was 0.70% and YTD return 7.9%. The 1 YR return was 5.65%.

Data as of First Quarter 2013
PTF Top Ten Holdings & Weightings

  • Western Digital Corporation (NASDAQ:WDC): 3.02%
  • Seagate Technology PLC (NASDAQ:STX): 2.88%
  • VeriSign, Inc. (NASDAQ:VRSN): 2.70%
  • Equinix, Inc. (NASDAQ:EQIX): 2.64%
  • Hewlett-Packard Co (NYSE:HPQ): 2.61%
  • Yahoo! Inc (NASDAQ:YHOO): 2.52%
  • NetApp, Inc. (NASDAQ:NTAP): 2.51%
  • Fiserv, Inc. (NASDAQ:FISV): 2.44%
  • Motorola Solutions, Inc. (NYSE:MSI): 2.43%
  • Alliance Data Systems Corporation (NYSE:ADS): 2.41%

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First Trust Internet ETF (FDN)

FDN follows the Dow Jones Internet Index which demands a constituent company must have 50% of its revenues from the internet. It was launched in June 2006. The expense ratio is 0.60%. AUM equal $900M and average daily trading volume is 265K shares. In our opinion this ETF provides the greatest exposure to companies in this important sector. As of late February 2012 the annual dividend yield was negligible and YTD return 9.50%. The 1 YR return was 20.90%.

Data as of First Quarter 2013
FDN Top Ten Holdings & Weightings

  • Google, Inc. Class A (NASDAQ:GOOG): 9.95%
  • Amazon.com Inc. (NASDAQ:AMZN): 7.61%
  • eBay Inc. (NASDAQ:EBAY): 6.45%
  • Priceline.com, Inc. (NASDAQ:PCLN): 5.13%
  • Salesforce.com, Inc. (NYSE:CRM): 4.45%
  • Yahoo! Inc. : 4.39%
  • Facebook Inc Class A (NASDAQ:FB): 3.49%
  • Equinix, Inc. : 3.31%
  • Juniper Networks (NYSE:JNPR): 3.28%
  • Rackspace, Inc.(NYSE:RAX): 3.14%

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iShares Software ETF (IGV)

IGV tracks the S&P North American Technology Software Index. The fund was launched in July 2001. The expense ratio is 0.48%. AUM equal $690M and average daily trading volume is roughly 52K shares. As of late February 2012 the annual dividend yield was 0.25% and YTD return 6.60%. The 1 YR return was 7.40%.

Data as of First Quarter 2013
IGV Top Ten Holdings & Weightings

  • Oracle Corporation (NYSE:ORCL): 8.92%
  • Microsoft Corporation (NASDAQ:MSFT): 8.14%
  • Salesforce.com, Inc. : 8.04%
  • Adobe Systems Inc. (NASDAQ:ADBE): 6.72%
  • Intuit, Inc. (NASDAQ:INTU): 6.27%
  • Symantec Corp. (NASDAQ:SYMC): 5.36%
  • Citrix Systems, Inc. (NASDAQ:CTXS): 4.46%
  • Red Hat, Inc. (NYSE:RHT): 3.76%
  • Autodesk, Inc. (NASDAQ:ADSK): 3.08%
  • CA, Inc. (NASDAQ:CA): 2.96%

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iShares Networking ETF (IGN)

IGN tracks the S&P North American Technology-Multimedia Networking Index. The fund was launched in July 2001. The expense ratio is 0.48%. AUM equal nearly $310M with average daily trading volume 80K shares. As of late February 2012 the annual dividend yield was 2.25% and YTD return 6%. The 1 YR return was -2.20%.

Data as of First Quarter 2013
IGN Top Ten Holdings & Weightings

  • F5 Networks, Inc. (NASDAQ:FFIV): 8.87%
  • Juniper Networks, Inc. : 8.84%
  • Motorola Solutions, Inc. : 8.62%
  • Cisco Systems Inc. (NASDAQ:CSCO): 8.35%
  • Qualcomm, Inc. (NASDAQ:QCOM): 8.02%
  • Blackberry, Inc. (NASDAQ:BBRY): 4.75%
  • Riverbed Technology, Inc. (NASDAQ:RVBD): 4.52%
  • JDS Uniphase Corp CA (JDSU): 4.38%
  • Harris Corporation (NYSE:HRS): 4.05%
  • Brocade Communications (NASDAQ:BRCD): 3.90%

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iShares PHLX SOX Semiconductor ETF (SOXX)

SOXX tracks the popular PHLX Semiconductor Index. The fund was launched in October 2001. The expense ratio is 0.48%. AUM equal nearly $230M and average daily trading volume is 204K shares. As of late February 2012 the annual dividend yield was 1.06% and YTD return 11.07%. The 1 YR return was 1.30%.

These Direxion 3x leveraged bull and bear ETFs, SOXL and SOXS, can be used for hedging and/or speculation.

Data as of First Quarter 2013
SOXX Top Ten Holdings & Weightings

  • Applied Materials, Inc. (NASDAQ:AMAT): 8.17%
  • Broadcom Corporation (BRCM): 8.15%
  • Taiwan Semiconductor Manufacturing ADR (NYSE:TSM): 7.95%
  • Texas Instruments, Inc. (NASDAQ:TXN): 7.57%
  • Intel Corp : 7.13%
  • SanDisk Corp (SNDK): 4.68%
  • Linear Technology (NASDAQ:LLTC): 4.22%
  • NVIDIA Corporation (NASDAQ:NVDA): 4.19%
  • KLA-Tencor Corporation (NASDAQ:KLAC): 4.16%
  • Altera Corp. (NASDAQ:ALTR): 4.15%

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First Trust Technology AlphaDEX ETF (FXL)

FXL follows the StrataQuant Technology Index which focuses on those select technology stocks in the Russell 1000 Index. From this First Trust employs an enhanced strategy to select and alter the index. The fund was launched in May 2007. The expense ratio is 0.70%. AUM equal $200M and average daily trading volume is 111K shares. As of late February 2012 the annual dividend yield was 0.33% and YTD return 6.92%. The 1 YR return was .29%.

Data as of First Quarter 2013
FXL Top Ten Holdings Weightings

  • EchoStar Corp. (NASDAQ:SATS): 2.31%
  • Teradyne Inc. (NYSE:TER): 2.30%
  • Arrow Electronics Inc. (NYSE:ARW): 2.18%
  • Rackspace Hosting, : 2.17%
  • Western Digital Corp. : 2.12%
  • Vishay Intertech (NYSE:VSH): 2.09%
  • NetSuite, Inc. (NYSE:N): 2.04%
  • Avnet Inc. (NYSE:AVT): 2.03%
  • Dell Inc. (NASDAQ:DELL): 1.99%
  • Equinix, Inc. : 1.94%

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First Trust NASDAQ 100 Technology ETF(QTEC)

QTEC follows the NASDAQ 100 Technology Sector Index is an equally weighted index. The fund was launched in April 2006. The expense ratio is 0.60%. AUM equal $111M while average daily trading volume is 33K shares. As of late February 2012 the annual dividend yield was .80% and YTD return 6.34%. The 1 YR return was -.25%.

Most investors believe the logical alternative to QTEC is PowerShares NASDAQ 100 ETF (QQQ). It follows the NASDAQ 100 Index which includes the largest 100 non-financial companies listed on the NASDAQ. But it's not a pure technology play with nearly 30% of constituents in other sectors.

Data as of First Quarter 2013
QTEC Top Ten Holdings & Weightings

  • Yahoo! Inc. : 2.34%
  • Apple Inc. : 2.34%
  • Equinix, Inc. : 2.32%
  • Baidu, Inc. ADR (NASDAQ:BIDU): 2.32%
  • Symantec Corp. : 2.31%
  • Facebook Inc Class A : 2.31%
  • Avago Tech (NASDAQ:AVGO): 2.30%
  • Western Digital Corp. : 2.30%
  • Nuance Comm. (NASDAQ:NUAN): 2.30%
  • Qualcomm, Inc. : 2.29%

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iShares Dow Jones U.S. Technology ETF (IYW)

IYW follows the index of the same name. The fund was launched May 2000. The expense ratio is 0.48%. AUM equal $1.8 billion and average daily trading volume is 270K shares. As of late February 2012 the annual dividend yield was less than 1% and YTD return 1.90%%. The 1 YR return was -1.08%.

Data as of First Quarter 2013
IYW Top Ten Holdings & Weightings

  • Apple Inc. : 17.92%
  • International Business Machines Corp. (NYSE:IBM): 8.96%
  • Microsoft Corporation : 8.64%
  • Google, Inc. Class A : 8.24%
  • Oracle Corporation : 5.56%
  • Cisco Systems Inc. : 4.68%
  • Qualcomm, Inc. : 4.62%
  • Intel Corp. : 4.54%
  • EMC Corporation (NYSE:EMC): 2.18%
  • Texas Instruments, Inc. : 1.60%

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Vanguard Information Technology ETF (VGT)

VGT follows the MSCI US Investable Market Information Technology 25/50 Index. The index consists of small to large companies in the broad technology space including various sectors and subsectors. The fund was launched January 2004. The expense ratio is 0.14%. AUM equal $2.6 billion with average daily trading volume 230K shares. As of late February 2012 the annual dividend yield was 1.06% and YTD return 3.05%. The 1 YR return was 2.35%.

VGT trades commission free at Vanguard.

Data as of First Quarter 2013
VGT Top Ten Holdings & Weightings

  • Apple Inc. : 20.49%
  • International Business Machines Corp. : 7.47%
  • Microsoft Corporation : 7.39%
  • Google, Inc. Class A : 6.44%
  • Oracle Corporation : 4.12%
  • Intel Corp. : 3.75%
  • Qualcomm, Inc. : 3.52%
  • Cisco Systems Inc. : 3.36%
  • Visa, Inc. (NYSE:V): 2.33%
  • EMC Corporation : 1.88%

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SPDR Technology Sector ETF (XLK)

XLK follows the Technology Select Sector Index which breaks the S&P 500 to those companies involved in technology and relevant subsectors. The fund was launched December 1998. The expense ratio is 0.18%. AUM (Assets under Management) equal $9,108M while average daily trading volume is over 9M shares. As of late February 2012 the annual dividend yield was 1.00% and YTD return 2.91%. The 1 YR return was 5.39%.

ProShares (ROM and REW) and Direxion (TECL and TECS) offer leveraged issues for hedging and/or speculation.

Data as of First Quarter 2013
XLK Top Ten Holdings & Weightings

  • Apple Inc. : 14.92%
  • International Business Machines Corp. : 7.50%
  • Microsoft Corporation : 7.34%
  • Google, Inc. Class A : 6.94%
  • AT&T Inc. (NYSE:T): 6.82%
  • Oracle Corporation : 4.68%
  • Verizon Communications Inc. (NYSE:VZ): 4.32%
  • Cisco Systems Inc. : 3.82%
  • Qualcomm, Inc. : 3.76%
  • Intel Corp. : 3.12%

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CONCLUSION
Technology and innovations in the sector remain a primary focus for investors. Clearly this sector will remain the leading source of innovation and economic growth in the U.S. and globally as well. As the sector expands overseas, we'll no doubt offer a review for these issues in another profile. Further, new ETFs in social media will be entering the scene for good or bad. Facebook, Zynga, LinkedIn and others have become available in the new Global X Social Media ETF (NASDAQ:SOCL) and may become popular in the future.

New ETFs from new providers are also being issued. These may include Schwab ETFs which are issuing new ETFs with low expense ratios and commission free trading. These may also become popular as they become seasoned.

As stated with other sectors, remember ETF providers must issue ETFs and their interests aren't necessarily aligned with yours. They have a business interest and wish to have a competitive presence in any popular sector.

For further information about portfolio structures using technical indicators visit www.etfdigest.com. You may follow us on Facebook as well and join our group conversations. You may address any feedback to: feedback [at] etfdigest [dot] com

The ETF Digest has a long position in IGV in our active trading portfolio and VGT in a lazy hedged portfolio.

Source for data is from ETF sponsors and various ETF data providers.

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Disclosure: I am long IGN, VGT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.