What are the best tech ETFs to watch?
ETFs – or exchange traded funds – are a cornerstone of the financial markets, giving you exposure to a broad range of assets with a single investment. Learn about some of the best performing tech ETFs and how to trade them.
Tech ETFs: what you need to know
Tech exchange traded funds (ETFs) track the price of a group of tech stocks, or the performance of the tech sector as a whole. Many investors want to invest in tech due to the roster of companies that operate in this sector, including Apple (AAPL), Microsoft (MSFT), Amazon (AMZN) and Alphabet (GOOGL).
A tech ETF is a way for you to get exposure to multiple companies at once. This means you won’t need to hold AAPL, MSFT, AMZN and GOOGL stock directly, and you won’t need to pay to invest in each of these companies separately.
Tech and information technology is one of the most popular sectors to invest in, and it had a number of the best performing stocks in countries across the globe for the first half (H1) of 2020.
|Location||Index||Company||Share price return||Sector|
|1||UK||FTSE All Share||BATM Advanced Communications||+266.9%||Information technology|
|2||Japan||Topix||GMO CLOUD K.K.||+176.5||Information technology|
|3||Australia||ASX 200||Afterpay||+130.1 %||Information technology|
|4||US||S&P 500||DexCom Inc||+94.0%||Health care|
|5||Spain||IBEX 35||Cellnex Telecom||+48.4%||Communication services|
|6||Singapore||Straits Times Index (STI)||Mapletree Logistics Trust||+19.5%||Real estate|
|7||France||CAC 40||Worldline||+17.2%||Information technology|
What are the different types of tech ETF?
There are many different types of tech ETF to take a position on, and the one you choose will depend on how you want to get exposure to the tech sector. In general, there are large cap tech ETFs, small cap tech ETFs and inverse or short tech ETFs. Let’s go through each of these in turn.
Large cap tech ETFs
Large cap tech ETFs are those with more assets under management – or total assets. Some funds have trillions of dollars in assets, others have less. The size of a fund is not essential to success, which is something that you should bear in mind before taking a position on tech ETFs.
An example of a large cap tech ETF is the iShares S&P 500 IT Sector, which has over £2 billion in total assets.
Small cap tech ETFs
Small cap tech ETFs will have fewer assets under management than large caps, but that isn’t necessarily a gauge of whether they will have a successful performance.
For example, the Han-Gins Tech Megatrend EQL has £24 million in total assets, but it achieved a total return of 37.8% year-to-date (YTD) at the time of writing (11 November 2020). In contrast, the iShares S&P 500 IT Sector fund mentioned in the previous section achieved a total return YTD of 31.2%.
Inverse or short tech ETFs
Inverse or short tech ETFs will increase in value if the underlying market falls. So, they are used by traders and investors with a negative outlook for the tech sector. You’d ‘buy’ an inverse tech ETF if you expected the tech sector to drop.
How to trade tech ETFs
- Create an account with us or log in
- Research the tech sector
- Decide on how you want to take a position
- Take steps to manage your risk
- Open and monitor your position
Before you trade tech ETFs, it’s important that you follow step three above and decide exactly how you want to take a position. Generally speaking there are two ways – trading or investing.
Trading will entail taking a position on an ETF with derivatives such as spread bets and CFDs. These enable you to trade on the rising value of the ETF by going long, as well as its falling value by going short. You won’t be buying shares in the ETF directly, but you will be able to take a position with leverage.
This’ll let you open a position with an initial deposit known as margin while granting you full market exposure. But, keep in mind that leverage can increase your losses, as well as your gains.
Investing enables you to directly buy shares in an ETF – meaning that you’ll profit if it rises in value. Alternatively, you could invest in an inverse ETF, which will let you profit from falling markets. You won’t be able to use leverage when investing, meaning you’ll have to commit the full value of your position upfront. But, you will be eligible for dividends if they are paid.
Best tech ETFs to watch
The best tech ETFs to watch will depend on what you’re looking to get out of your ETF position. We’ve included 10 funds that are listed on the London Stock Exchange (LSE) below. They are ranked in terms of their total return YTD at the time of writing (11 November 2020), which also includes any dividends that the fund has paid.
|Ticker||Name||Share class||Total assets (£M)||Total return % (YTD)||Expense ratio|
|1||EMQP||EM Internet & Ecomm UCITS ETF||GBP||132||56.7||0.86|
|2||KWBP||KraneShares CSI China Internet||GBP||245||44.8||0.75|
|3||FDN||First Trust DJ Internet ETF||GBP||28||38.5||0.55|
|4||ITEP||Han-Gins Tech Megatrend EQL||GBP||24||37.8||0.59|
|5||FSKY||First Trust Cloud Computing||GBP||437||33.4||0.60|
|6||IITU||iShares S&P 500 IT Sector||GBP||2047||31.2||0.15|
|7||XLKQ||Invesco US Technology S&P||GBP||555||30.2||0.14|
|8||SKYP||Han-Gins Cloud Tech UCITS ETF||GBP||26||15.5||0.59|
|9||BLOK||First Trust Indxx Innov Tran & Process||GBP||44||7.9||0.65|
|10||FCBR||First Trust Cybersecurity||GBP||42||-||0.60|
|11||CYBP||Rize Cybersecurity UCITS ETF||GBP||36||-||0.45|
We’ve included LSE-listed ETFs here because when investing from the UK, you’ll avoid the forex exchange rates and the higher commission fee associated with US ETFs, for example. As the data shows, the largest ETF in terms of total assets wasn’t the best performing in terms of total return percentage.
Instead, EMQP was the best performing in terms of total return percentage. The EMQP Emerging Markets and Ecommerce UCITS ETF is an exchange traded fund domiciled in Ireland. For reference, you may see EMQP referred to elsewhere as EMQQ – but that is the US share class for the fund. The UK share class is EMQP, which is favoured by investors based in the UK as you’ll avoid the previously mentioned forex exchange rates and higher commission fees.
EMQP tracks an index of internet and ecommerce companies that serve emerging markets in sectors including, online retailers, social networks, online video, online gaming, e-payment systems and online travel. Funds that have no total return data were launched in 2020, therefore the data wasn’t available.
Trading the FAANG index
The FAANG index tracks the performance of the five most popular and historically best performing US technology stocks: Facebook, Amazon, Apple, Netflix and Google (Alphabet). The FAANG index will give you exposure to these big-name companies, and the index gives a general picture of how some of the largest companies in the world – not just in tech – are currently performing.
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