One of the most effective ways to invest in these three tech giants without buying their shares directly and at the same time diversify your portfolio would be by investing in specific Exchange Traded Funds or ETFs.
These include: “iShares Global Tech ETF” (IXN), “iShares North American Tech ETF” (IGM), and the more mid-term oriented “First Trust Nasdaq Internet ETF” (FTQ).
If we compare them to the stocks they represent, these three funds would be like investing in AMZN, GOOGL, and AAPL. What makes them attractive is that all of them still have plenty of room to grow.
They are very similar in that they focus on large-cap companies (only IXN also has some small-caps) and mainly invest in companies involved with technology, telecommunications, and the internet.
IXN invests in 51 stocks – including AMZN, GOOGL, AAPL, and FB – while IGM invests in 66, including another five stocks of the FAANG group (NFLX, TSLA, BIDU, DISH, and BABA).
FTQ invests in 29 companies, with AMZN, GOOGL, and AAPL once again number one.
Although IXN is more like the other two funds, thanks to its small-caps exposure, it should be seen as the best choice over the next few years. It tracks the performance of the iShares North American Technology Sector Index, which invests in companies involved in technology or that provide technology services.
This index holds “Diversified US Technology Companies” with a market cap between $5 and 200 billion dollars. All of them are selected using the same method: they must be listed in the NASDAQ or the NYSE, have a market cap higher than $ 5 billion, and have liquidity greater than 15%.
At least 80% of this index’s weight is in large-cap companies, and at least 50% is in growth stocks. Along with IXN, this is the best ETF to grow your portfolio as it’s expected to outperform over the next 4-5 years.
In terms of an investment – although not a huge difference – IXN would be the better choice as it costs only 0.15% in fees per year compared to 0.43 for IGM.
This fee is reasonable as the fund has a solid performance, and it’s been around for almost seven years now. Despite its focus on large-cap companies, which are more defensive regarding market volatility, it also bested the S&P 500 over one, three, and five years.
The second option – IGM – costs 0.4% per year and is expected to deliver solid performance in terms of capital appreciation. It focuses on large-cap US technology companies involved in software, IT services, semiconductors, or networking (internet service providers).
However, it’s not as safe an investment as IXN because it only holds stocks with a market cap of over $10 billion and liquidity greater than $ 1 million.
The third choice – FTQ – is a bit riskier as it focuses on mid and small-cap companies and tracks the performance of the Nasdaq CTA Internet Index. It holds 31 companies involved in technology, telecommunications, or internet business.
Just like with IXN, this ETF has been around for almost seven years, and it’s expected to outperform over the next 4-5 years. It costs 0.49% per year, but unlike IXN and IGM, FTQ is volatile, especially if we compare it with other ETFs that track US large and mid-cap companies.
As a result, this ETF is more suitable for short-term trading by buying and selling stocks every few months. For long-term investment, it would be better to buy IXN or IGM – although they are both volatile as well.
If you were to invest in one of these ETFs that track the performance of large, mid, or small-cap US technology companies, you should know that the sector is expected to grow because of high performance in digital technology.
According to an analysis conducted by FactSet, US companies under this sector are expected to post average earnings growth of 8.5% for 2017 and 9.6% for 2018. At the same time, they’re also moving towards more online peer-to-peer platforms that could boost growth even further.
Although this sector is considered defensive, industry experts expect it to grow by an average of 9.2% for 2017 and 10.1% in 2018, making it a great option for long-term investment.
After analyzing the performance of IXN over the last four years, it’s expected to outperform IGM and FTQ as well as the S&P 500. These three ETFs are also expected to deliver solid returns over 2-3 years, although not as impressive as IXN.
The bottom line here is that IXN is a very good choice for long-term investment, but if you expect to invest for a shorter period, then IGM or FTQ might be better.
IXN is a very good choice for long-term investment, although IGM and FTQ might be the better short-term choices.
You should also know that none of these ETFs are as conservative as BND or SCHB, making them more suitable if you don’t mind taking risks with your money.
In terms of performance, IXN is expected to outperform other options in the long run, while IGM and FTQ are more volatile.
Since all three ETFs are very similar, it’s up to you to decide which one is best for your needs. If IXN isn’t available on your broker – although it should be – then go with FTQ or IGM.
In the end, all three options are good choices that might bring you better returns in the long term.
Disclaimer: Our content is intended to be used for informational purposes only. It is very important to do your own research before making any investment based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find on this article and wish to rely upon, whether for the purpose of making an investment decision or otherwise.