Tech ETFs Poised to Power Up Portfolios

Includes: IYW, QQQ, XLK
by: Tom Lydon

The technology sector is getting warmer as we write. This notoriously fickle sector might be best accessed in ETF form as it grows.

After a lull, tech is hot once again. Here are just a few of the reasons:

  • Companies simply haven’t been spending ... until now. Corporations are sitting on nearly $2 trillion in cash. That money is slowly being deployed to, among other things, upgrading outdated technology.
  • Tech companies also famously have strong balance sheets and low levels of debt, which will serve them well in bull and bear markets alike.
  • High unemployment, shrinking paychecks, big debts to pay off. None of that is any matter to consumers when it comes to getting their hands on the latest gadget, and they’re not going off-brand to save a few bucks.
  • As the economy recovers and job growth returns, we’ll likely see consumers upgrading outdated personal equipment, too, whether it’s laptops, PCs, tablets or smartphones.
  • Areas of tech that will see the largest earnings include information technology, computer hardware and enterprise software.

The tech sector is a very broad one. Sub-sectors include semiconductors, biotechnology, information technology, networking and telecommunications. Three simple ways to get exposure to all of the sub-sectors are:

  • iShares Dow Jones U.S. Technology Sector Index Fund (NYSEARCA:IYW): The top holdings are Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), IBM, Google (NASDAQ:GOOG), Oracle (NYSE:ORCL) and Cisco (NASDAQ:CSCO). IYW has $1.5 billion in assets and a 0.47% expense ratio.
  • Technology Select Sector SPDR (NYSEARCA:XLK): Top holdings are Apple, Microsoft, IBM, AT&T (NYSE:T), Google and Oracle. XLK is a large fund, with $6.2 billion in assets. It also has a competitive expense ratio at 0.21%.
  • PowerShares QQQ (QQQQ): Apple gets the largest weight in this ETF, with 20.4%; Qualcomm (NASDAQ:QCOM), Google, Microsoft, Oracle and Amazon (NASDAQ:AMZN) follow. QQQQ is also the largest technology-focused ETF, with more than $23 billion in assets. It also has the lowest expense ratio of the three at 0.20%.

Tisha Guerrero contributed to this article.

Disclosure: None