Technology plays a fundamental role in driving innovation and transforming industries in today’s rapidly evolving world. Capitalizing on the technology sector’s growth potential can be a prudent strategy for an investor. One way to achieve this exposure is by allocating a portion of your portfolio to Technology Exchange-Traded Funds (ETFs). This article discusses the best Technology focused ETFs available in Canada. We will also cover two of the most popular Technology ETF in the US.
Advantages of owning a Technology ETF
Diversification and Risk Mitigation
Allocating to Technology ETFs provides diversification benefits, as they typically hold a basket of tech stocks from various sub-sectors. By spreading your investments across multiple companies, you reduce the impact of any stock’s performance on your portfolio. The tech industry encompasses various sectors, such as software, hardware, e-commerce, and biotechnology, offering diverse growth opportunities. This diversification helps mitigate risk and shields your portfolio from potential volatility in individual technology stocks.
Capitalizing on Growth Potential
Technology ETFs offer an opportunity to tap into the growth potential of the tech sector. With advancements like artificial intelligence, cloud computing, and the Internet of Things (IoT) driving innovation, technology companies have a strong growth trajectory. By allocating to Technology ETFs, you position yourself to benefit from this growth, as the ETFs hold a diversified portfolio of tech stocks well-positioned to capitalize on industry trends and disruptive technologies.
Access to Expertise and Research
Investing in Technology ETFs allows you to leverage the expertise of professional fund managers and their research capabilities. These managers are responsible for selecting and managing the underlying portfolio of tech stocks within the ETF. They conduct in-depth analysis, monitor industry trends, and make informed investment decisions on behalf of the fund. By investing in a Technology ETF, you gain exposure to their research-driven investment strategies, benefiting from their knowledge and experience in the tech sector.
Convenience and Cost Efficiency
Technology ETFs offer convenience and cost efficiency to investors. This especially true for Index ETFs tracking the Nasdaq 100.
Potential for Dividends and Income
Some Technology ETFs also offer the potential for dividends and income. While the technology sector is often associated with growth stocks, certain companies pay dividends. By investing in dividend-focused Technology ETFs, you can benefit from both capital appreciation and regular income generation, enhancing the total return of your portfolio.
Why most Technology ETFs track the Nasdaq 100?
The NASDAQ-100 is an index that represents the performance of the top 100 non-financial companies listed on the NASDAQ stock exchange. It is one of the most widely followed stock market indices and includes companies from various sectors such as technology, consumer services, healthcare, and more.
The NASDAQ-100 is known for its heavy weighting towards technology companies, which has earned it the reputation of being a technology-focused index. Many of the world’s largest and most innovative technology companies, such as Apple, Microsoft, Amazon, and Alphabet (Google), are included in the index.
The index is market capitalization-weighted, meaning that the companies with the largest market values have a greater influence on its performance. This gives investors exposure to leading companies in the technology and other sectors, making it an attractive benchmark and investment option.
The NASDAQ-100 has historically shown strong growth and has been driven by the rapid advancement of technology and the increasing reliance on technology in various aspects of our lives. However, it’s important to note that investing in the NASDAQ-100 carries risks, especially during times of market volatility or sector-specific downturns.
Overall, the NASDAQ-100 provides investors with an opportunity to track and invest in a diverse range of leading technology and non-financial companies, making it a popular choice for those seeking exposure to the growth potential of the tech sector and other innovative industries.
Top Technology funds in Canada
Best Technology ETF in the US
Best Technology ETF in Canada
Asset under managements and MER comparison
|VGT||Vanguard Information Technology Index Fund||40,450|
|XLK||Technology Select Sector SPDR Fund||40,100|
|XQQ.TO||Ishares Nasdaq 100 Index||1,974||0.39|
|ZQQ.TO||BMO Nasdaq 100 Hedged To CAD Index||1,410||0.39|
|TEC.TO||TD Global Technology Leaders Index||1,217||0.39|
|TXF.TO||CI Tech Giants Covered Call||526||0.71|
|XIT.TO||Ishares S&P TSX Capped Info Tech||512||0.61|
|ZNQ.TO||BMO Nasdaq 100 Equity Index||446||0.39|
|HTA.TO||Harvest Tech Achievers Growth & Income||423||0.98|
VGT – Vanguard Information Technology Index Fund (US)
- The fund invests in information technology companies.
- It invests in growth and value stocks across different market capitalizations.
- The goal is to track the performance of the MSCI US Investable Market Index (IMI)/Information Technology 25/50. It aims to replicate the target index, which consists of stocks from large, mid-size, and small U.S. companies in the information technology sector.
|Visa Inc Class A||3.16|
|Mastercard Inc Class A||2.91|
|Cisco Systems Inc||1.74|
XLK – Technology Select Sector SPDR Fund (US)
- The fund specifically targets companies operating in various information technology sectors.
- It invests in both growth and value stocks across different market capitalizations.
- The fund aims to replicate the performance of the Technology Select Sector Index through full replication.
|Cisco Systems Inc||2.58|
|Accenture PLC Class A||2.35|
|Advanced Micro Devices Inc||2.19|
|# of Holdings||67|
XQQ – Ishares Nasdaq 100 Index
iShares NASDAQ 100 Index ETF (CAD-Hedged) is an exchange traded fund that seeks to track the performance of the NASDAQ-100 Currency Hedged CAD Index.
Hedged vs Unhedged funds ETF Canada – What’s better?
|Meta Platforms Inc||3.96%|
ZQQ – BMO Nasdaq 100 Hedged To CAD Index
BMO Nasdaq 100 Hedged To CAD is an exchange traded fund that seeks to track the performance of the NASDAQ-100 Currency Hedged CAD Index.
|Meta Platforms Inc||3.59%|
TEC – TD Global Technology Leaders ETF
The objective of the TEC ETF in Canada is to provide investors with exposure to the performance of the technology sector. By investing in the TEC ETF, investors have the opportunity to participate in the growth and potential returns of technology companies. These companies operate in various areas within the technology sector, including software, hardware, internet, telecommunications, and other related industries.
The TEC ETF seeks to offer investors exposure to both established companies and emerging players in the sector.
|Meta Platforms Inc||3.22%|
TXF – CI Tech Giants Covered Call ETF
TXF invests in an an equal weight basis in a portfolio of equity securities of at least the 25 largest technology companies measured by market capitalization listed on a North American stock exchange. The fund uses a covered call strategy to both:
- Lower volatility
- Increase distributions. This fund pays a quarterly cash distribution which included both dividends and premiums earned by issuing call options.
The companies included in the portfolio of the ETF may be changed based on the Portfolio Manager’s opinion about how easily their stocks and call options can be bought or sold. The decision is made by considering the market value of these companies.
|Meta Platforms Inc||4.54%|
|Micron Technology Inc||4.24%|
|Cisco Systems Inc||4.08%|
XIT – iShares S&P/TSX Capped Info Tech ETF
XIT seeks long-term capital growth by replicating the performance of the S&P/TSX Capped Information Technology Index, net of expenses. The index tracked includes exclusively Canadian companies. In total, this ETF invest in 24 Canadian technology stocks. There is a 25% cap put in place to avoid over exposure to a particular stock.
Top Tech ETFs: Full review of IShares XIT 2023
|Constellation Software Inc||24.54%|
|Open Text Corp||10.17%|
|The Descartes Systems Group Inc||6.22%|
|Lightspeed Commerce Inc||1.85%|
XIT Sector allocation
|Internet Services & Infrastructure||25.34|
|IT Consulting & Other Services||13.60|
|Data Processing &|
|Electronic Manufacturing Sces||0.71|
|Cash and/or Derivatives||0.03|
ZNQ – BMO NASDAQ 100 Equity ETF
BMO Nasdaq 100 Equity Index ETF has been designed to replicate the performance of a NASDAQ listed companies index.
Hedged vs Unhedged funds ETF Canada – What’s better?
|Meta Platforms Inc||3.60%|
HTA – Harvest Tech Achievers Growth & Income ETF
HTA is an ETF that invests in an equally weighted portfolio of 20 large-cap technology companies (globally). In order to generate an enhanced monthly distribution yield, an active covered call strategy is engaged.
Covered call strategies are great as they generate additional income for investors (in the form of premiums). The strategy is somewhat conservative and aims at preserving the capital invested primarily. On the other hand, the strategy limits potential growth.
|Micron Technology Inc||5.10%|
|Advanced Micro Devices Inc||5.07%|
|Keysight Technologies Inc||5.00%|