A guide to technology sector ETFs (IGN, IGV, IGW, BDH, BHH, HHH, IIH, SMH, QQQQ, XLK, IYW, VGT, PXQ, PSI, PSJ)

by: David Jackson

Note: here's a fully updated list of tech ETFs. And you can see how the tech sector is performing vs. other sectors on the Sector Data Dashboard.

Angelina Dance recommends technology sector ETFs in an article in Business Week (paid subscription required). The entire article is worth reading, if only for her overview of 10 available technology ETFs. Here's an outline of the technology ETFs (there are actually 15 of them!) followed by some of the key points from Angela's article:

Technology sector ETFs

Technology ETFs come in three types: (a) sub-sector ETFs, such as those covering only software or semiconductors, (b) broad tech sector ETFs, and (c) new "dynamically managed ETFs" from PowerShares (more on those here). Of the sub-sector ETFs, Merrill Lynch HOLDRs are the least well-suited to long-term investors because they are baskets of stocks that don't change as the indexes are updated. Internet HOLDRs, for example, were defined before Google's IPO and therefore don't contain that stock.

Goldman Sachs tech index sub-sector funds:

  • Goldman Sachs Networking Index Fund (ticker: IGN) is the best performing tech ETF over the last three years. Very high volatility and concentration.
  • Goldman Sachs Semiconductor Index Fund (ticker: IGW) is the worst performing tech sector ETF over three years, but the best performing so far this year.
  • Goldman Sachs Software Index Fund (ticker: IGV)

Merrill Lynch tech sub-sector HOLDRs:

  • Broadband HOLDRS (ticker: BDH)
  • B2B HOLDRs (ticker: BHH)
  • Internet HOLDRs (ticker: HHH)
  • Internet Infrastructure HOLDRs (ticker: IIH)
  • Semiconductor HOLDRs (ticker: SMH). SMHs are very liquid, and are favored by traders.

Broad-based tech ETFs:

  • Nasdaq 100 Trust (ticker: QQQQ) is more diversified, but contains non-tech companies too. (Note what I wrote about this ETF in The Radical Guide to Investing, here.)
  • The S&P Select Sector SPDR Fund (ticker: XLK) holds large tech stocks in the S&P 500.
  • iShares Dow Jones U.S. Technology Fund (ticker: IYW) tracks the technology stocks in the Dow Jones U.S. Total Market index, and holds more stocks (260) than any other tech ETF.
  • Vanguard Information Technology VIPERs (ticker: VGT)

PowerShares ETFs

  • PowerShares Dynamic Networking (ticker: PXQ)
  • PowerShares Dynamic Semiconductor (ticker: PSI)
  • PowerShares Dynamic Software (ticker: PSJ)

Comments on technology sector ETFs as an investment vehicle

  • Technology sector ETFs allow you to know exactly what you're holding, unlike many mutual funds where you don't know what the fund manager has purchased.
  • Technology sector ETFs are cheaper to own and easier to trade than mutual funds, and can be held for the long-term.

Comments on the technology sector

  • S&P analyst Scott Kessler thinks that technology valuations are reasonable and fundamentals are improving.
  • He likes high-quality, large cap tech stocks.
  • Among the sub-sectors of technology, he favors storage and internet advertising.