By: Kyle Woodley
U.S. News & World Report ranks the best exchange-traded funds for tech lovers.
Semiconductors, software and IT services.
The heart of the technology sector's earnings season typically brings with it a lot of big swings, even in the bluest of blue-chip tech stocks. But you can avoid the volatility from quarterly tech earnings season by getting some of your exposure in a more well-rounded way: via exchange-traded funds, which let you invest in the sector as a whole, or in specific industries such as Internet companies or semiconductor makers. Here's the top 10 tech ETFs as of this writing, as ranked by U.S. News & World Report.
1. Vanguard Information Technology ETF (VGT)
The dirt-cheap VGT is also a strong performer, beating out the S&P 500 in total returns at 143.46 percent to 136.74 percent since inception in late January 2014, and it's no slouch at $9 billion in assets under management. Still, the XLK has the overall performance advantage, with 148.72 percent gains in that time. VGT is similarly constructed, though telecoms like AT&T and Verizon Communications (VZ) are utterly absent. If you're driven by paying the absolute least for broad tech exposure, you'll want to lean toward VGT.
2. Technology Select Sector SPDR ETF (XLK)
The XLK is the gold standard for tech funds – both the well-recognized and the largest with nearly $14 billion in assets under management. The XLK is a collection of all the tech favorites – Apple, Microsoft and Facebook, though it also features AT&T (T) in its top five holdings. The XLK also is one of the cheapest tech ETFs out there, and it even has a performance edge over the lifetime of the top-ranked fund out there, which we'll look at next.
3. Guggenheim S&P 500 Equal Weight Technology ETF (RYT)
The RYT is, as the name would suggest, an equal-weight fund that invests in the Standard & Poor's 500 index's tech stocks -- 68 blue-chip names. Thanks to the equal weighting methodology, no stock makes up more than 1.7 percent of the holdings. RYT has a heavy bent toward IT services and semiconductors, each at nearly a quarter of the fund. One note with the last of our equal-weighting funds – the methodology provided better diversification, but in the tech sector, not always (or even often) better returns.
4. iShares U.S. Technology (IYW)
The IYW would seem to be pretty spread out given that it has 140 holdings within America's tech sector. However, this fund is extremely concentrated at the top, with the top five companies representing more than half of the IYW's weight. Apple alone is a massive 17 percent of the fund, and Microsoft and Alphabet (GOOG, GOOGL) each take up 12 percent. This is a great fund when all is going well for technology's most blue-chip stocks, but when the chips are down … watch out.
5. iShares Exponential Technologies ET (XT)
The iShares' XT ETF aims to be at the forefront of the tech sector's prevailing trends, using what it calls a "unique evaluation process to identify companies developing and/or leveraging promising technologies." As a result, XT is invested in things such as 3D printing via 3D Systems Corp. (DDD) and Indian IT outsourcing via Wipro (WIT). This is another equal-weighted fund, with no stock making up more than 1 percent of the fund. Nearly 30 percent of the fund is invested in health care technology.
6. iShares North American Tech ETF (IGM)
The IGM is another broad-based tech fund, with this one focusing on roughly 275 North American tech companies. This is a traditional cap-weighted fund, so 30 percent of the fund is concentrated in its top 10 holdings, led by MSFT, AAPL and FB. However, investors are treated to a decent industry spread, with double-digit portions of the fund invested in five areas, including Internet software, storage and semiconductors. Internet retail comes close at nearly 9 percent of the fund.
7. Fidelity MSCI Information Technology Index (FTEC)
The FTEC is a broad-based ETF, focusing on mostly large-capitalization, growth-oriented stocks within the tech sector. Thus, you get consumer-facing hardware companies like Apple, software companies like Microsoft, Internet companies like Facebook (FB) and even payment tech companies such as Visa (V). While the FTEC is diversified in that it holds nearly 400 companies, this still is a top-heavy fund, with the top five companies weighted at nearly 45 percent, including a 13 percent-plus weighting for Apple – a common theme among many big tech ETFs
8. Market Vectors Semiconductor ETF (SMH)
The SMH also invests in the tech sector's semiconductor subsection. This is a very niche ETF of just 26 holdings currently, all involved in the production or other aspects of the chip business. Top holdings Intel Corp. (INTC) and Taiwan Semiconductor Manufacturing Co. (TSM) make up more than a quarter of the fund, but SMH offers some geographic diversification – a little more than 30 percent of the fund is invested in stocks from Taiwan, the Netherlands, Singapore, the U.K. and Bermuda.
9. SPDR S&P Semiconductor ETF (XSD)
The XSD is a diversified, balanced fund of semiconductor companies, almost all of which are in the U.S. What is notable is its equal-weighting methodology – XSD weighs each of its 40 holdings the same at each rebalancing so no one stock has an outsized effect on the ETF. However, weights do fluctuate in between rebalancing depending on performance, so currently; top holdings are Inphi Corp. (IPHI), Nvidia Corp. (NVDA) and Advanced Micro Devices (AMD).
10. iShares Global Tech (IXN)
You would imagine that the iShares Global Tech ETF took a worldwide view of the technology sphere, and you'd be less than a quarter correct. Less than 25 percent of the fund is invested in domiciled outside of the U.S. with Japan leading the way at 5.1 percent. With heavily weighted top holdings such as Apple (AAPL, 12.5 percent) and Microsoft Corp. (MSFT, 8.9 percent) this fund shares a lot in common with most other broad tech funds.
Although the use of financial planners is growing, most Americans still tend to take a do-it-yourself approach to building a portfolio and saving for retirement.
Forty percent of respondents in a 2015 survey by the Certified Financial Planner Board of Standards say they utilized financial advisors, an increase from 28 percent in 2010. And while most people are handling their own finances, there are distinct advantages to hiring a professional.
A financial advisor can give investors the discipline to resist investing or divesting reactively, says Angela Coleman, fiduciary investment advisor at Unified Trust Co., headquartered in Kentucky. "We take the emotion out of it," Coleman says.
With the Internet, the world is awash with financial advice, and professional financial advisors can act as a filter, says Andrew Barnett, relationship director at Global Financial Private Capital in Sarasota, Florida.
Financial advisors are a good option for helping clients assess their risk tolerance and then build a portfolio that actually meets what they want, says Drew Horter, founder and president of Horter Investment Management in Cincinnati. He says many people who want to be conservative with their money actually have portfolios that are riskier than they'd like.
Kimberly Foss, founder and president of Empyrion Wealth Management and author of "Wealthy by Design: A 5-Step Plan for Financial Security," recommends interviewing two or three advisors and having one to two meetings with each because this is a relationship that will last "hopefully for the rest of your life," she says.
There are hundreds of thousands of personal financial advisors in America — 249,400 in 2014 according to the Bureau of Labor Statistics — so how should retail investors pick an advisor, whether they are independent or work with a large brokerage, a regional bank or an insurance company?
Consider the fiduciary standard. Barnett advises people to seek advisors who are fiduciaries, which means they are legally responsible to put the clients' best interest in mind before their own.
Non-fiduciary advisors are required only to sell clients what they think is suitable for them. "Dealing with a fiduciary, I think, is critical," Coleman says.
The Department of Labor recently approved a new rule that would require all financial professionals who offer investment advice for retirement accounts to follow the fiduciary standard. But while that rule covers investments in IRAs and 401(k)s, it doesn't impact advisors who are recommending investments for a taxable brokerage account.
Know the pay structure and fees. Coleman recommends that people not pick advisors that are paid solely on commission. An alternative is fee-based advice, where clients are charged a set percentage of assets under management, she says.
Clients with fewer assets to manage may want to choose a fee-based advisor that charges by the hour or a flat annual fee, Coleman says.
Barnett notes that there are now more products such as annuities or real estate investment trusts available as fee-based products.
Opinions vary, but advisor fees could be anywhere from 1 to 2 percent of assets under management. If you have a lot with a financial advisor, that extra percent could be a tidy sum.
This fee is separate from other fees, such as those that come with mutual funds that are disclosed in the prospectus, so it's important to ask advisors if they can break down all the costs of investing, which can include trading, custodial, accounting and sales fees, Barnett says.
Do your homework. Investors should also check into an advisor's background, Coleman says. Know what certifications the advisor holds, and ask advisors for a list of current clients as references.
If an advisor won't provide references, that is a sign of a problem, she says.
In addition to references, investors should ask for an advisor's performance track record, Foss says.
Because a client may have a financial advisor for decades, it's important to find someone they like and trust.
Sometimes that can be accomplished by getting to know the advisor, Coleman says, "Find someone you've got a good rapport with."
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