Exchange-traded funds (ETFs) are a quick and convenient way to add exposure to certain investment themes.
Put another way, it’s like buying the hay stack instead of looking for the needle within.
In recent years, the tech sector has been one of the most popular hay stacks.
Here are some of the top tech ETFs that should be on your radar.
|Ticker||Company||Description||AUM||CAGR Since Inception*|
|XIT||Blackrock||Focused on Canadian information technology companies.||C$425 million||5.75%|
|TEC||TD||Focused on mid- and large-cap tech companies across the world.||C$1.25 billion||16.99%|
|BITS||Global X||Focused on Bitcoin futures and blockchain stocks.||US$12.2 million||-39.8%|
|CYBR||Evolve||Focused on global companies involved in the cyber security industry.||C$228 million||16.51%|
|QQQ||Invesco||Focused on the 100 largest non-financial companies listed on the NASDAQ stock exchange.||US$168.7 billion||9.06%|
1. iShares S&P/TSX Capped Information Tech Index ETF (XIT)
Canada’s technology sector doesn’t get much attention, but it’s a thriving space.
Shopify (TSX:SHOP) is a household name, however there are plenty of niche enterprise tech companies that have delivered remarkable returns over the past decades.
iShares S&P/TSX Capped Information Tech Index ETF (TSE:XIT) offers investors access to them all.
The fund’s top holdings include some of Canada’s biggest tech names such as Constellation Software (TSX:CSU) and Open Text Corp (TSX:OTEX).
XIT’s performance is a mixed bag.
Over the past ten years, the fund delivered a compounded annual growth rate of 18.9%.
However, the past year has been abysmal with total return dropping to -25.1%.
If the fund can recover to its long-term average pace of growth, this could be an ideal time to add exposure.
2. TD Global Technology Leaders Index ETF (TEC)
TD Global Technology Leaders Index ETF (TSX:TEC) is focused on the biggest tech companies across the world.
The portfolio includes some of the most successful and well-known tech giants like Apple (AAPL) and Microsoft (MSFT) alongside companies like Fujitsu (TYO: 6702) and Fanuc (TYO: 6954).
The fund has over 280 holdings with investments in Japan, Latin America, and the European Union.
However, since the global technology sector is dominated by the United States, the fund is overexposed to tech giants in this country.
85.8% of the portfolio consists of companies currently based in the US
TEC could be an ideal target for Canadian investors who’re looking to overcome their home bias.
3. Blockchain & Bitcoin Strategy ETF (BITS)
Investors tend to have divided opinions on blockchain technology and digital assets.
While some investors shun the sector, others see it as a critical part of the future digital economy.
For most investors, a little exposure to this trillion-dollar industry would be warranted.
If the technology lives up to its potential, you wouldn’t want to miss out on all that upside.
If it fails, losing a fraction of your portfolio wouldn’t be too detrimental.
With that in mind, The Global X Blockchain & Bitcoin Strategy ETF (NASDAQ:BITS) could be an ideal target.
This relatively new and tiny fund holds Bitcoin futures contracts and the Global X Blockchain ETF (BKCH) in its portfolio.
BKCH holds emerging blockchain companies like Coinbase (COIN), Hut 8 Digital (TSX:HUT) and Galaxy Digital (TSX:GLXY).
BITS has lost more than a third of its value year-to-date, as the demand for Bitcoin and other digital assets has recently hit a wall.
However, the industry is highly cyclical and has bounced back from previous crypto winters.
If history repeats itself, BITS could be an ideal target for a long-term investor.
4. Evolve Cyber Security Index ETF (CYBR)
The threat of cyberattacks grows larger with each passing year.
During the pandemic, government agencies and corporations saw a huge spike in the number of attempted cyberattacks.
This year, the war in Eastern Europe has put many organizations on high alert.
The demand for digital defense tools could be robust for the foreseeable future.
Investors looking to add this theme to their portfolio could consider the Evolve Cyber Security Index ETF (TSX:CYBR).
The fund’s portfolio includes some of the best digital defense companies in the world, including Palo Alto Networks (NASDAQ:PANW) and Checkpoint Software (NASDAQ: CHKP).
The CYBR ETF has lost tremendous value since November alongside the rest of the tech sector.
However, this industry serves a critical need which could mean the industry’s revenue could be more robust than its tech peers.
If you’re looking for a stable long-term growth opportunity, this could be an ideal target.
5. Invesco QQQ ETF (QQQ)
Invesco’s QQQ ETF is, perhaps, one of the most popular ETFs in the world.
Based on trading volume, the ETF is second only to the flagship S&P 500 in the US.
That’s because the fund was one of the first to focus on America’s most critical growth engine: large-cap tech.
The ETF holds the 100 largest technology companies listed on the NASDAQ.
This includes household names such as Apple (APPL) and Amazon (AMZN) alongside lesser-known niche companies like Broadcom (NASDAQ: AVGO).
$10,000 invested in this fund in 2012 would be worth roughly $58,995 on May 8th, 2022.
That’s a CAGR of 9.55% since inception.
Year-to-date though, the index is struggling.
It’s down roughly 8.95% since January.
Investors who believe this dip is temporary could see an opportunity to add exposure to this ETF right now.
What is a Technology ETF?
Technology ETFs are funds that track the broader tech sector or specific segments of the technology industry.
Over the past two decades, tech has been the driving force behind global economic growth.
From Japan to India, eCommerce, software-as-a-service and smartphone manufacturers have created trillions of dollars in aggregate value for shareholders.
However, not all tech companies are destined for greatness.
For regular investors, picking apart winners and losers from long-term tech trends is a complicated process.
Tech index ETFs, such as QQQ and XIT, could be a better alternative for retail investors.
Instead of picking winners, these ETFs simply track the whole industry.
Over time, the ETFs could outperform most stock pickers.
Key Considerations When Investing in Technology ETFs in Canada
Canada’s tech sector is dominated by enterprise software companies.
The largest and most successful Canadian tech companies are either serial acquirers (such as Constellation Software) or niche enterprise software providers (such as OpenText).
This is reflected in the tech ETFs listed on the Toronto Stock Exchange.
Most Canadian tech ETFs have a hefty exposure to the enterprise tech space.
By comparison, America’s tech index has a diverse mix of eCommerce, social media giants and consumer hardware companies.
Investors need to be aware of this key difference in tech ETFs on either side of the border.
Investors should also consider the management fees and expense ratios of the funds they pick.
These costs could erode some of the long-term expected gains.
Frequently Asked Questions
- What is the best tech ETF in Canada?
The “best” tech ETF depends on your investment objectives, risk tolerance and time horizon. If you’re looking to make a broad bet on the growth potential of the technology sector, a basic ETF like XIT could be ideal. However, if you prefer niche assets or hypergrowth opportunities, CYBR or the Purpose Bitcoin CAD ETF (TSX:BTCC) could be more preferable.
- Is QQQ a tech ETF?
Invesco’s QQQ ETF was designed to track the 100 largest non-financial companies listed on the NASDAQ. As such, the mandate isn’t focused on tech. However, the NASDAQ stock exchange has been extremely popular with tech companies and the largest stocks on the exchange are in this sector, which is why the QQQ is heavily tilted to tech. In fact, 50% of the ETF’s holdings are tech stocks.
- Does Vanguard have a technology ETF?
Vanguard offers the Vanguard Information Technology ETF (NYSEARCA: VGT). It focuses on companies that serve the electronics and computer industries or that manufacture products based on the latest applied science. The largest holdings include Apple, Nvidia and Cisco.