Despite facing challenges such as a dip in global tech spending and rising layoffs over the past year, the tech sector is showing promising signs of recovery. Economists have lowered their recession forecasts, and analysts are optimistic about the potential for modest growth in the tech industry this year.
Given this positive sentiment, investing in technology ETFs like First Trust Nasdaq Semiconductor ETF (FTXL), Global X Artificial Intelligence & Technology ETF (AIQ), and iShares Exponential Technologies ETF (XT) might be wise choices for those looking to gain exposure to the tech sector.
With increased spending on software and IT services, the focus is shifting back to innovation and growth. According to a Deloitte survey of 122 tech executives, 55% rate the tech industry as healthy or very healthy, with 62% expecting this trend to continue over the next six months.
The survey highlighted efficiency, innovation, and productivity as primary focus areas, with Artificial Intelligence (AI), cloud computing, cybersecurity, advanced connectivity, and generative AI driving industry growth.
Moreover, the rising adoption of AI is fueling investments in cloud infrastructure, connectivity, and modernization, indicating an evolving and innovative tech landscape. Nearly two-thirds of tech leaders believe this is an opportune moment for their companies to take greater risks.
Gartner’s research further supports this optimism, predicting an 8% year-over-year increase in global IT spending in 2024, reaching $5.06 trillion. Software and IT services are expected to contribute to about half of this spending surge, driven by significant investments in cybersecurity as AI adoption heightens security concerns.
Exchange-Traded Funds (ETFs) offer a strategic way to invest, providing a diversified portfolio that reduces risk while capturing broad market opportunities. Rather than being tied to the performance of individual stocks, ETFs allow investors to benefit from the collective growth of multiple companies in the tech sector.
Based on a report by The Business Research Company, the global information technology market is estimated to reach $12.42 trillion by 2028, growing at a CAGR of 8.3%.
With that in mind, let’s look at the fundamentals of the top three Technology Equities ETFs, beginning with number 3.
ETF #3: First Trust Nasdaq Semiconductor ETF (FTXL)
FTXL seeks to track the performance of the Nasdaq US Smart Semiconductor Index. Managed by First Trust Advisors LP, the fund invests in companies within the information technology, semiconductors, and semiconductor equipment sectors. It includes a mix of value, growth, and volatile stocks from companies of various market capitalizations.
The fund has $1.49 billion in assets under management (AUM). Its top holdings are NVIDIA Corporation (NVDA), with an 11.17% weighting, QUALCOMM Incorporated (QCOM), at 9.69%, and Applied Materials, Inc. (AMAT), and Broadcom Inc. (AVGO), at 8% and 7.84%, respectively. The fund has a total of 32 holdings.
FTXL has an expense ratio of 0.60%, compared to the category average of 0.58%. Its fund inflows were $15.95 million over the past three months and $72.56 million over the past six months. Also, it has a beta of 1.58, indicating high volatility compared to the broader market.
The fund pays an annual dividend of $0.48, translating to a 0.50% yield at the prevailing price level. Its dividend payouts have grown at a 26.5% CAGR over the past three years. The fund’s four-year average yield is 0.56%.
Over the past year, FTXL has gained 44.5% to close the last trading session at $96.09. It has also gained 8.3% over the past month. The ETF had an NAV of $96.14 as of June 6, 2024.
FTXL’s POWR Ratings reflect this promising outlook. The ETF’s overall A rating equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
FTXL has an A grade for Trade, Buy & Hold, and a B for Peer. Among the 119 ETFs in the B-rated Technology Equities ETFs group, it is ranked #16. To access all of FTXL’s POWR Ratings, click here.
ETF #2: Global X Artificial Intelligence & Technology ETF (AIQ)
AIQ, managed by Global X Management Company LLC, focuses on investing in companies developing and using artificial intelligence technology and those providing hardware for big data analysis. This includes firms in the AI software, system software, and IT sectors. After accounting for fees and expenses, the fund aims to mirror the price and yield performance of the Indxx Artificial Intelligence & Big Data Index.
The fund has a total of 85 holdings. Its top holdings include NVDA with a 5.52% weighting, Tencent Holdings Ltd. at 4%, followed by QCOM and Netflix, Inc. (NFLX) with 3.77% and 3.63% weightings, respectively.
AIQ’s trailing-12-month dividend of $0.05 yields 0.14% on the current price level, while its four-year average dividend yield is 0.34%.
The fund has an expense ratio of 0.68% compared to the category average of 0.37%. Over the past six months, AIQ’s fund inflows came in at $949.38 million, and $1.43 billion over the past year. Also, the ETF has a beta of 1.25.
AIQ has gained 28.3% over the past year and 17.3% over the past six months to close the last trading session at $34.46. As of June 6, 2024, AIQ had an AUM of $1.87 billion and an NAV of $34.36.
AIQ’s POWR Ratings reflect solid prospects. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
AIQ has an A grade for Trade and Buy & Hold. Of the 119 ETFs in the Technology Equities ETFs group, it is ranked #14.
Beyond what we stated above, we have also given AIQ a grade for Peer. Get all AIQ ratings here.
ETF #1: iShares Exponential Technologies ETF (XT)
BlackRock Fund Advisors manages XT. The fund invests globally in public equity markets and targets companies in the information technology sector, including growth and value stocks across various market capitalizations. It seeks to track the performance of the Morningstar Exponential Technologies Index, which measures the performance of equity securities issued by companies that are involved in groundbreaking technologies.
With $3.36 billion in AUM, its top holdings are NVDA with a 1.22% weighting in the fund, followed by First Solar, Inc. (FSLR), Coinbase Global, Inc. (COIN), and Moderna, Inc. (MRNA) at 0.87% weight each, respectively. The ETF has a total of 201 holdings.
The ETF’s expense ratio is 0.46%, higher than the category average of 0.37%. XT fund outflows were $8.73 million over the past five days.
The fund pays an annual dividend of $0.25, which translates to a 0.42% yield at the current price level. Its four-year average yield is 0.80%.
XT has gained 6.3% over the past nine months and 8% over the past year to close the last trading session at $59.19. It has a five-year beta of 1.21. The fund’s NAV was $59.22 as of June 6, 2024.
XT’s solid fundamentals are reflected in its POWR Ratings. The fund has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The fund has an A grade for Trade and Buy & Hold. XT is ranked #11 among 119 ETFs in the same B-rated group. Click here to access all the XT ratings.
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XT shares were unchanged in premarket trading Friday. Year-to-date, XT has declined -1.14%, versus a 12.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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