Tech focus: How to invest in technology via ETFs

by , 22nd November 2017

When investors start talking about technology, it’s almost inevitable that the conversation will turn to the dot-com crash in 2000. Many investors were badly hurt back then, so it’s understandable if some have avoided the sector since then.

But avoiding technology in 2001 would have been a mistake and, more likely than not, it’s still a mistake now – assuming you’re a long-term investor anyway. If you avoid technology, you’ll miss out on some of today’s biggest stock market growth stories. Tomorrow’s too.

But what’s the best way to invest in technology?

Picking individual stocks can be rewarding but isn’t for everyone.

A specialist technology fund can work well, but the charges tend to be on the high side. Often higher than your average actively managed fund. For example, the Allianz Technology Investment Trust has an annual charge of 1.11%. It’s a good fund and you could argue that the charge is well worth paying given the trust’s strong performance over the last five years, but some of us just aren’t prepared to pay that kind of money.

If you’re in that boat, you might want to consider a specialist ETF where the charges are lower. So in this piece, we’re going to look at some of the biggest and best technology ETFs.

  1. Lyxor World MSCI World Information Technology UCITS ETF (LSE:TNOG)

This ETF will give you a pretty broad exposure to the global technology sector and tracks the MSCI World Information Technology index. Its top ten constituents include most of the obvious suspects: Apple, Facebook, Microsoft and Alphabet are all in there, although the inclusion of MasterCard is a bit of a surprise.

Even though this a global fund, it’s still dominated by US stocks – they comprise about 85% of the fund.

The charges are nice and low with a Total Expense Ratio of 0.4% a year, and has about 150 million euros under management. So it’s not a huge fund but there should be enough liquidity for private investors and the bid/offer spread isn’t too large.

It’s also worth noting that the total return is lower than for the actively managed Allianz Technology Trust that we mentioned earlier. The Lyxor ETF has delivered a 5-year return of 197% compared to a 289% share price return for Allianz.

  1. iShares S&P 500 IT sector UCITS ETF USD (LSE:IUIT) 

If you don’t want to bother with the non-US technology stocks, you can save yourself a bit of money by going for a pure US technology ETF. This ishares ETF has an annual charge of just 0.15% and has $408 million under management. The bid/offer spread is quite tight. The fund tracks the S&P500 information technology index.

     3. Ishares Nasdaq 100 UCITS ETF (LSE CNX1)

This ETF tracks the hundred largest stocks on the tech-heavy Nasdaq index. The important point here is that although the Nasdaq has plenty of technology stocks, it’s not exclusively a technology index. So you also have non-tech stocks such as the retailers, Dollar General and Costco. The technology component of the index amounts to 58% of the whole.

So this isn’t the perfect way to invest in technology, but with a $1.4 billion dollar fund size you should get plenty of liquidity – in the ETF at least – and the annual charge is reasonable at 0.33%.

     4. db x-trackers Stoxx Europe 600 Technology UCITS ETF (LSE: XS8R) 

This ETF gives you exposure to the European technology sector and tracks the Stoxx Europe 600 Technology sector. Looking at the portfolio, the most striking thing is that one stock comprises 26% of the portfolio – the company is the German software giant, SAP. The fund is pretty cheap with a 0.3% annual ongoing charge and it has 99 million euros under management.

     5. Robo Global Robotics and Automation UCITS ETF  (LSE: ROBO) 

This ETF is operated by ETF Securities and it’s been fantastically successful for the firm with assets under management well over the billion dollar mark. It invests in robotics and other automation technologies and interestingly the portfolio isn’t completely dominated by US stocks, at least when compared to the Lyxor global technology ETF.

Only 45% of the fund comprises US stocks whilst Japanese stocks comprise 25% of the fund. The top ten holdings don’t include household names, so investing in this ETF may give you exposure to stocks you don’t already have in your portfolio. The charges for this fund were recently cut and now stand at 0.4% a year.

iShares also offer a robotics ETF which is cheaper than Robo with a 0.4% annual charge. It’s called the ishares Automation & Robotics UCITS ETF (LSE:RBOT).

    6. Other specialist technology ETFs

iShares also offers a range of other specialist technology ETFs. These include the iShares Ageing Population UCITS ETF (LSE:AGED) and the ishares Healthcare Innovation UCITS ETF (LSE:HEAL). Both of these ETFs have annual charges of 0.4%. 

 

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