Top 10 Technology ETFs

NEW YORK ( ETF Digest) -- Currently there are nearly three dozen ETFs oriented to the technology sector with more on the way. The following analysis features a fair representation of ETFs available. We believe from these investors may choose an appropriate ETF to satisfy the best index-based offerings individuals and financial advisors may utilize.

We're not ranking these ETFs favoring one over another so don't let the listing order mislead you. Although we may use some of these in ETF Digest portfolios it's not our intention to recommend one over another.

ETFs are based on indexes tied to well-known index providers including Russell, S&P, Barclays, MSCI, Dow Jones and so forth. Also included are some so-called "enhanced" indexes that attempt to achieve better performance through more active management of the index.

Previously we had avoided using HOLDRS but now Van Eck has just assumed most of these including previously popular SMH (ML Semiconductor HOLDRS) which bears the same ticker SMH but has kept many of the components and intact so as to not disrupt previous investors too much. These weightings and constituents will change over time. Further, remember that many of these ETF indexes are "weighted" making constituents like Apple (AAPL) and International Business Machines (IBM) even more of a factor than perhaps investors might suspect.

We rank the top 10 ETF by our proprietary stars system as outlined below. However, given that we're sorting these by both short and intermediate issues we have split the rankings as we move from one classification to another.

 


Strong established linked index
Excellent consistent performance and index tracking
Low fee structure
Strong portfolio suitability
Excellent liquidity


Established linked index even if "enhanced"
Good performance or more volatile if "enhanced" index
Average to higher fee structure
Good portfolio suitability or more active management if "enhanced" index
Decent liquidity


Enhanced or seasoned index
Less consistent performance and more volatile
Fees higher than average
Portfolio suitability would need more active trading
Average to below average liquidity


Index is new
Issue is new and needs seasoning
Fees are high
Portfolio suitability also needs seasoning
Liquidity below average

We feature a technical view of conditions from monthly chart views. Simplistically, we recommend longer-term investors stay on the right side of the 12 month simple moving average. When prices are above the moving average, stay long, and when below remain in cash or short. Some more interested in a fundamental approach may not care so much about technical issues preferring instead to buy when prices are perceived as low and sell for other reasons when high; but, this is not our approach. Premium members to the ETF Digest receive added signals when markets become extended such as DeMark triggers to exit overbought/oversold conditions.

For sophisticated traders and investors wishing to hedge or speculate leveraged long/short and inverse issues are available from ProShares and DirexionShares.

Technology and innovations in the sector remain a primary focus for investors. Clearly this sector will remain the leading source of innovation and economic growth in the U.S. and globally as well. As the sector expands overseas we'll no doubt offer a review for these issues in another profile. Further new ETFs in social media will be entering the scene for good or bad. Already with the much-hyped Facebook IPO the new Global X Social Media ETF (SOCL) may be much in view.

 

#10: PowerShares Dynamic Technology ETF (PTF)

PTF follows the Dynamic Technology Sector Intellidex Index which is another "enhanced" index modified by quantitative methodologies. The fund was launched in October 2006. The expense ratio is .60%. AUM equal $30 million making and average daily trading volume is less than 5K shares.

As of early February 2012 annual dividend yield was unavailable and YTD return was 11.47%. The one year return was -3.85%.

Data as of First Quarter 2012

PTF Top Ten Holdings & Weightings
  1. Western Digital Corporation (WDC): 2.64%
  2. Seagate Technology PLC (STX): 2.56%
  3. Dell Inc (DELL): 2.52%
  4. Alliance Data Systems Corporation (ADS): 2.50%
  5. Intel Corp (INTC): 2.49%
  6. Teradata Corporation (TDC): 2.49%
  7. KLA-Tencor Corporation (KLAC): 2.49%
  8. Visa, Inc. (V): 2.48%
  9. MasterCard Incorporated A (MA): 2.46%
  10. Intuit, Inc. (INTU): 2.46%

#9: First Trust Technology AlphaDEX ETF (FXL)

FXL follows the StrataQuant Technology Index which focuses on those select technology stocks in the Russell 1000 Index. From this First Trust employs an enhanced strategy to select and alter the index. The fund was launched in May 2007.

The expense ratio is .70%. AUM equal $228 million and average daily trading volume is 170K shares. As of early February 2012 annual dividend yield was unavailable and YTD return was 12.77%. The one year return was -6.84%

Data as of First Quarter 2012

FXL Top Ten Holdings Weightings
  1. Arrow Electronics Inc (ARW): 2.35%
  2. Novellus Systems, Inc. (NVLS): 2.27%
  3. Hewlett-Packard Co (HPQ): 2.22%
  4. Teradyne Inc (TER): 2.18%
  5. Fairchild Semiconductor International (FCS): 2.14%
  6. AOL, Inc. (AOL): 2.14%
  7. Micron Technology, Inc. (MU): 2.12%
  8. Vishay Intertechnology, Inc. (VSH): 2.11%
  9. Jabil Circuit, Inc. (JBL): 2.04%
  10. Western Digital Corporation (WDC): 2.02%

#8: iShares PHLX SOX Semiconductor ETF (SOXX)

SOXX tracks the popular PHLX Semiconductor Index. The fund was launched in October 2001. The expense ratio is .48%. AUM equal nearly $257 million and average daily trading volume is 282K shares. As of early February 2012 annual dividend yield was .84% and YTD return 14.88%. The one year return was -6.17%.

ProShares and Direxion feature issues for hedging and/or speculation.

Data as of First Quarter 2012

SOXX Top Ten Holdings & Weightings
  1. Intel Corp (INTC): 7.98%
  2. Applied Materials, Inc. (AMAT): 7.93%
  3. Broadcom Corporation (BRCM): 7.93%
  4. Texas Instruments, Inc. (TXN): 7.93%
  5. Taiwan Semiconductor Manufacturing ADR (TSM): 7.93%
  6. Micron Technology, Inc. (MU): 4.30%
  7. KLA-Tencor Corporation (KLAC): 4.29%
  8. SanDisk Corp (SNDK): 4.09%
  9. Altera Corp. (ALTR): 4.04%
  10. Marvell Technology Group, Ltd. (MRVL): 4.02%

#7: iShares Networking ETF (IGN)

IGN tracks the S&P North American Technology-Multimedia Networking Index. The fund was launched in July 2001. The expense ratio is .48%. AUM equal nearly $212 million with average daily trading volume 56K shares. As of early February 2012 annual dividend yield was .30% and YTD return 9.60%. The one year return was -13.44%.

An alternative choice is PXQ (PowerShares Dynamic Networking ETF) which tracks the Dynamic Networking Intellidex Index. As of early February 2012 annual dividend yield was .44% and YTD return 12.20%. The one year return was .29%.  The difference in performance is due to a lower weighting in Cisco (CSCO) and other underperforming constituents. This makes the enhancement of the index methodology marginally more effective in this case.

Data as of First Quarter 2012

IGN Top Ten Holdings & Weightings
  1. Juniper Networks, Inc. (JNPR): 8.75%
  2. Qualcomm, Inc. (QCOM): 8.69%
  3. Motorola Mobility Holdings, Inc. (MMI): 8.58%
  4. Motorola Solutions, Inc. (MSI): 8.50%
  5. Cisco Systems Inc (CSCO): 8.37%
  6. Harris Corporation (HRS): 4.68%
  7. F5 Networks, Inc. (FFIV): 4.34%
  8. Riverbed Technology, Inc. (RVBD): 4.13%
  9. Research in Motion Ltd (RIMM): 4.04%
  10. Polycom, Inc. (PLCM): 3.54%

#6: iShares Software ETF (IGV )

IGV tracks the S&P North American Technology Software Index. The fund was launched in July 2001. The expense ratio is .48%. AUM equal $508 million and average daily trading volume is roughly 155K shares. As of early February 2012 annual dividend yield was .o4% and YTD return 11.44%. The one year return was .55%.

Alternative choice might include PSJ (PowerShares Dynamic Software ETF). The latter tracks the Dynamic Software Intellidex Index an enhanced index which seeks to more actively manage the constituents via quantitative methodologies. As of early February 2012 annual dividend yield was not available and YTD return 7.55%. The one year return was -2.47%. 

Data as of First Quarter 2012

IGV Top Ten Holdings & Weightings
  1. Microsoft Corporation (MSFT): 9.21%
  2. Oracle Corporation (ORCL): 7.52%
  3. Intuit, Inc. (INTU): 6.88%
  4. Adobe Systems Inc (ADBE): 6.11%
  5. Salesforce.com, Inc. (CRM): 6.08%
  6. Citrix Systems, Inc. (CTXS): 4.99%
  7. Symantec Corp (SYMC): 4.76%
  8. Red Hat, Inc. (RHT): 3.53%
  9. CA, Inc. (CA): 3.31%
  10. Autodesk, Inc. (ADSK): 3.05%

#5: First Trust Internet ETF (FDN)

FDN follows the Dow Jones Internet Index which demands a constituent company must have 50% of its revenues from the internet. It was launched in June 2006. The expense ratio is .60%. AUM equal $509M and average daily trading volume is 253K shares. In our opinion this ETF provides the greatest exposure to companies in this important sector.

As of early February 2012 annual dividend yield was .07% and YTD return 5.54%. The one year return was -2.85%.

Data as of First Quarter 2012

FDN Top Ten Holdings & Weightings
  1. Google, Inc. (GOOG): 11.02%
  2. Amazon.com Inc (AMZN): 7.02%
  3. eBay Inc (EBAY): 5.78%
  4. Yahoo! Inc (YHOO): 4.94%
  5. Priceline.com, Inc. (PCLN): 4.88%
  6. Salesforce.com, Inc. (CRM): 4.08%
  7. Juniper Networks, Inc. (JNPR): 4.04%
  8. Check Point Software Technologies, Ltd. (CHKP): 3.60%
  9. Akamai Technologies, Inc. (AKAM): 3.35%
  10. TIBCO Software, Inc. (TIBX): 3.11%

#4: First Trust NASDAQ 100 Technology ETF (QTEC)

QTEC follows the NASDAQ 100 Technology Sector Index is an equally weighted index. The fund was launched in April 2006. The expense ratio is .60%. AUM equal $165 million while average daily trading volume is 60K shares. As of early February 2012 annual dividend yield was .33% and YTD return 11.90%. The one year return was -.79%.

Most investors believe the logical alternative to QTEC is QQQ (PowerShares NASDAQ 100 ETF). It follows the NASDAQ 100 Index which includes the largest 100 nonfinancial companies listed on the NASDAQ. But it's not a pure technology play with nearly 30% of constituents in other sectors.

Data as of First Quarter 2012

QTEC Top Ten Holdings & Weightings
  1. Seagate Technology PLC (STX): 3.35%
  2. F5 Networks, Inc. (FFIV): 3.18%
  3. Akamai Technologies, Inc. (AKAM): 2.99%
  4. Citrix Systems, Inc. (CTXS): 2.88%
  5. KLA-Tencor Corporation (KLAC): 2.76%
  6. VeriSign, Inc. (VRSN): 2.72%
  7. Autodesk, Inc. (ADSK): 2.72%
  8. SanDisk Corp (SNDK): 2.71%
  9. Intel Corp (INTC): 2.67%
  10. Cisco Systems Inc (CSCO): 2.64%

#3: iShares Dow Jones U.S. Technology ETF (IYW)

IYW follows the index of the same name. The fund was launched May 2000. The expense ratio is .48%. AUM equal $1.3 billion and average daily trading volume is 256K shares. As of early February 2012 annual dividend yield was .61% and YTD return 9.44%. The one year return was 3.31%.

Alternative choices with similar characteristics include MTK (SPDR MS Technology ETF) which follows the Morgan Stanley Technology Index. The expense ratio is .50%.  IGM (iShares S&P/GSTI Technology ETF) follows the index of the same name. The expense ratio is .48%. Both ETFs have achieved similar rates of return with similar holdings. 

Data as of First Quarter 2012

IYW Top Ten Holdings & Weightings

  1. Apple, Inc. (AAPL): 17.31%
  2. International Business Machines Corp (IBM): 10.14%
  3. Microsoft Corporation (MSFT): 8.96%
  4. Google, Inc. (GOOG): 7.57%
  5. Intel Corp (INTC): 5.80%
  6. Cisco Systems Inc (CSCO): 4.59%
  7. Qualcomm, Inc. (QCOM): 4.31%
  8. Oracle Corporation (ORCL): 4.01%
  9. Hewlett-Packard Co (HPQ): 2.41%
  10. EMC Corporation (EMC): 2.09%

#2: Vanguard Information Technology ETF (VGT)

VGT follows the MSCI US Investable Market Information Technology 25/50 Index. The index consists of small to large companies in the broad technology space including various sectors and subsectors. The fund was launched January 2004.

The expense ratio is .19%. AUM equal $2 billion with average daily trading volume 215K shares. As of early February 2012 annual dividend yield was .79% and YTD return 9.19%. The one year return was 3.63%.

Data as of First Quarter 2012

VGT Top Ten Holdings & Weightings
  1. Apple, Inc. (AAPL): 14.75%
  2. International Business Machines Corp (IBM): 8.87%
  3. Microsoft Corporation (MSFT): 7.90%
  4. Google, Inc. (GOOG): 5.44%
  5. Oracle Corporation (ORCL): 4.87%
  6. Intel Corp (INTC): 4.73%
  7. Cisco Systems Inc (CSCO): 3.56%
  8. Qualcomm, Inc. (QCOM): 3.40%
  9. Hewlett-Packard Co (HPQ): 2.03%
  10. Visa, Inc. (V): 1.88%

#1: SPDR Technology Sector ETF (XLK)

XLK follows the Technology Select Sector Index which breaks the S&P 500 to those companies involved in technology and relevant subsectors. The fund was launched December 1998. The expense ratio is .19%. AUM (Assets under Management) equal $8.2 billion while average daily trading volume is over 7.5M shares. As of early February 2012 annual dividend yield was 1.51% and YTD return 7.27%. The one year return was 4.90%.

ProShares and Direxion offer leveraged issues for hedging and/or speculation.

Data as of First Quarter 2012

XLK Top Ten Holdings & Weightings
  1. Apple, Inc. (AAPL): 14.80%
  2. International Business Machines Corp (IBM): 8.52%
  3. Microsoft Corporation (MSFT): 7.64%
  4. AT&T Inc (T): 7.05%
  5. Google, Inc. (GOOG): 6.42%
  6. Verizon Communications Inc (VZ): 4.49%
  7. Intel Corp (INTC): 4.14%
  8. Oracle Corporation (ORCL): 3.99%
  9. Cisco Systems Inc (CSCO): 3.82%
  10. Qualcomm, Inc. (QCOM): 3.64%

Investors should note that in a rising market particularly ETFs linked to enhanced issues will tend to outperform conventional index linked issues. I've not done enough analysis to determine their relative strength during down market periods.

New ETFs from highly regarded and substantial new providers are also being issued. These may include Charles Schwab's ETFs and Scottrade's Focus Shares which both are issuing new ETFs with low expense ratios and commission free trading at their respective firms. These may also become popular as they become seasoned. 

As stated with other sectors, remember ETF sponsors must issue and their interests aren't aligned with yours. They have a business interest and wish to have a competitive presence in any popular sector.

 

For further information about portfolio structures using technical indicators like DeMark and other indicators see www.etfdigest.com . You may follow us on Facebook as well and join our group conversations.

 

You may address any feedback to: feedback@etfdigest.com   

 

The ETF Digest has a long position in VGT in lazy hedged portfolio.

 

(Source for data is from ETF sponsors and various ETF data providers.)

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

Dave Fry is founder and publisher of ETF Digest, Dave's Daily blog and the best-selling book author of Create Your Own ETF Hedge Fund, A DIY Strategy for Private Wealth Management, published by Wiley Finance in 2008. A detailed bio is here: Dave Fry.

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