Tech stocks have advanced this year after declining significantly last year. Instead of picking a specific tech stock, investors could consider investing in tech-focused Exchange-Traded Funds or ETFs that provide the benefits of diversification by giving exposure to multiple technology stocks. Let’s have a look at three tech-focused ETFs that can fetch attractive returns.
iShares Semiconductor ETF (SOXX)
The iShares Semiconductor ETF (SOXX) tracks an index composed of U.S.-listed semiconductor companies, called the ICE Semiconductor Index. The top three holdings of the SOXX ETF are Nvidia (NVDA), Broadcom (AVGO), and Texas Instruments (TXN). Semiconductor makers account for 80% of the fund, while the remaining 20% includes semiconductor equipment manufacturers.
Last year, SOXX’s performance was impacted by the decline in semiconductor stocks due to lower demand in the PC market and macro pressures. It has generated a total return of nearly 25% so far in 2023 due to improved investor sentiment.
Is SOXX ETF a Good Investment?
The fund has a competitive expense ratio of 0.35% and its P/E multiple stands at 19.3. It has $7.6 billion assets under management. As per TipRanks’ Smart Score System, SOXX has a score of eight out of 10, which implies that it could outperform the broader market over the long term. The bullish long-term demand outlook for the semiconductor space makes the SOXX ETF attractive.
Technology Select Sector SPDR Fund (XLK)
The Technology Select Sector SPDR Fund (XLK) tracks the Technology Select Sector Index, which effectively represents the technology sector of the S&P 500 Index (SPX). iPhone maker Apple (AAPL) accounts for 22.2% of XLK’s overall holdings, while Microsoft (MSFT) represents 21.1%. Chip maker Nvidia (NVDA) is the third-largest component of the XLK ETF, representing nearly 6% of the overall holdings.
The XLK ETF has exposure to multiple sectors in the tech space, including 32.5% to the software space, 23.2% to technology hardware, storage, and peripherals companies, and nearly 22% to semiconductors and semiconductor equipment manufacturers.
Is XLK a Buy or Sell?
The XLK ETF has generated about 15% return year-to-date in 2023 and has a low expense ratio of 0.10%. The fund is trading at a forward P/E of 24.7. It is one of the largest ETFs and has nearly $43 billion assets under management. On TipRanks, the XLK ETF has a Smart Score of 8, implying it could outperform the market averages in the long term.
First Trust NASDAQ Cybersecurity ETF (CIBR)
The First Trust Nasdaq Cybersecurity ETF (CIBR) tracks an equity index called the Nasdaq CTA Cybersecurity Index. Broadcom (AVGO) is the top holding of the CIBR ETF, accounting for 6.4% of the overall holdings. Fortinet (FTNT) and Infosys (INFY) are the other cybersecurity companies featuring among the top three holdings.
Is CIBR a Buy?
With $4.9 billion assets under management, the CIBR ETF has appreciated nearly 10% so far in 2022. It has an expense ratio of 0.60% and is trading at a Price/Sales ratio of 3.67. On TipRanks, the First Trust NASDAQ Cybersecurity ETF carries a Neutral Smart Score of seven.
The cybersecurity sector is generally known to be resilient compared to other tech categories as growing cyber threats and geopolitical tensions are ensuring solid demand. The robust long-term outlook for cybersecurity solutions makes the CIBR ETF a good pick.
Bottom Line
Tech ETFs are an attractive alternative for gaining exposure to tech stocks and help reduce the overall risk through diversification. Increased digitization and the rapid shift to the cloud make tech ETFs compelling long-term investments.
