The technology sector seems fully emerged from the burst of the dot-com bubble. This is especially true as the ultra-popular Select Sector SPDR Technology ETF (XLK – Free Report) hit record highs on Jan 9, surpassing the peak of the dot-com era in March 2000. The surge in chipmakers as well as FAANG stocks led to the 18-year record performance (read: 5 ETF Ways to Tap Hot Semiconductor Stocks).
The sector has been investors’ darling over the past couple of years given that the expanding economy and solid job prospects provide a nice boost to the economically sensitive growth sectors like technology that typically perform well in a maturing economic cycle. Additionally, the emergence of cutting-edge technology such as cloud computing, big data, Internet of Things, wearables, VR headsets, drones, virtual reality, and artificial intelligence (AI) as well as strong corporate earnings are acting as the key catalysts.
Further, the twin tailwinds of Trump’s tax reform plan and a rising interest rate scenario are driving the stocks higher. This is because tech titans hoard huge cash overseas and are poised to benefit the most from the reduced tax rates. In fact, the top five U.S. hoarders are Apple (AAPL – Free Report) , Microsoft (MSFT – Free Report) , Alphabet (GOOGL – Free Report) , Cisco (CSCO – Free Report) and Oracle (ORCL – Free Report) that hold 88% of their money overseas, according to Moody’s.
According to the Consumer Technology Association, the tech industry is expected to reach a record $351 billion this year, up 3.9% from 2017. It also expects U.S. sales of connected devices to rise 6.6% to 715 million units this year (see: all the Technology ETFs here).
Music and video streaming services will likely be the hot category fetching in revenues of $19.5 billion while maturing technologies like ($62.9 billion), laptops ($28.4 billion), digital TVs ($22.1 billion), automotive electronics ($15.9 billion) and tablets ($12.5 billion) will contribute about half of the total revenues. Emerging technologies are expected to rake in $6.4 billion in wearables, $4.5 billion in smart homes, $3.8 billion in smart speakers, $1.2 billion in virtual reality and $1.2 billion in drones.
Investors seeking to ride the hottest trends could bet on the following ETFs. All of these make for an excellent pick this year.
This is an actively managed and the world’s first AI ETF seeking long-term capital appreciation within risk constraints commensurate with the broad market U.S. equity indices. It utilizes the cognitive and big data processing abilities of IBM Watson to analyze U.S.-listed investment opportunities. The product holds 67 stocks that are widely spread across components with none accounting for more than 3.7% share. About 44% of the portfolio is dominated by financials while consumer discretionary, information technology and healthcare round off the next three spots with a double-digit exposure each. AIEQ has accumulated nearly $100 million within three months of its debut and trades in a good average daily volume of 182,000 shares. It has an expense ratio of 0.75% (read: First Artificial Intelligence ETF Soars in Popularity).
The product offers exposure to 30 companies that potentially stand to benefit from increased adoption and utilization of robotics and AI, including those involved with industrial robotics and automation, non-industrial robots, and autonomous vehicles. This can be easily done by tracking the Indxx Global Robotics & Artificial Intelligence Thematic Index. None of the securities accounts for more than 8.23% of the assets. The ETF has amassed $1.7 billion in its asset base and trades in heavy average daily volume of around 1.2 million shares. It charges 68 bps in annual fees from investors (read: 4 Reasons Why Investors Love Passive ETFs).
This ETF seeks to invest in companies that stand to benefit from the broader adoption of the Internet of Things (IoT). This includes the development and manufacturing of semiconductors and sensors, integrated products and solutions, and applications serving smart grids, smart homes, connected cars, and the industrial Internet. The product follows the Indxx Global Internet of Things Thematic Index and holds 45 stocks in its basket with none holding more than 9.04% share. It has amassed $92.4 million in its asset base and sees a lower volume of 44,000 shares a day on average. Expense ratio comes in at 0.68%.
This fund tracks the EQM Wearables Index, which measures the performance of companies that have a current or future business focus on wearable technology devices and/or components of such devices. It holds 59 securities in its basket with each accounting for less than 3% share. The ETF is currently overlooked by investors as depicted by AUM of under $1 million and average daily volume of just 1,000 shares. It charges investors 85 bps in annual fees.
This product invests in companies on the leading edge of the emerging financial technology sector, which encompasses a range of innovations helping to transform established industries like insurance, investing, fundraising, and third-party lending through unique mobile and digital solutions. It follows the Indxx Global FinTech Thematic Index, holding 33 stocks with each making up for no more than 8.64% share. The fund has AUM of $63 million and trades in a lower volume of 36,000 shares a day on average. The expense ratio comes in at 0.68% (read: 5 Overlooked Tech ETFs Crushing XLK).
This is the first ETF focused on the emerging commercial drone market by tracking the Reality Shares Drone Index. Holding 47 stocks, it is heavily concentrated on the top two firms with a double-digit allocation each. Industrials accounts for more than half of the portfolio, followed by 32% in information technology. The ETF has $46.2 million in AUM and expense ratio of 0.75%. It trades in a lower volume of 16,000 shares a day on average.
Quincy Jones Streaming Music, Media & Entertainment ETF QJ
This product is still in the pipeline and seeks to track the performance of the Quincy Jones Streaming Music, Media & Entertainment Index. It looks to offer exposure to the performance of companies in the business of streaming music and media or broad entertainment industries including media and entertainment, telecommunication, amusement and recreation, technology manufacturers, and Internet. The fund, if approved, has the potential to garner enough investor interest given the robust demand for streaming services (read: Quincy Jones ETF: Creative or Crazy?).
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