Rapid technological advancements and universal adoption across industries position the technology industry for substantial growth. Hence, investors looking to capitalize on the industry tailwinds in a relatively less risky manner may consider buying quality tech ETFs First Trust NASDAQ-100-Technology Sector Index Fund (QTEC), iShares Expanded Tech Sector ETF (IGM) and Vanguard Communication Services Index Fund (VOX) right now.
Before discussing why these ETFs hold solid upside potential, let’s see what’s happening in the tech space.
Industries vigorously employ technology to engage customers, foster innovation, and enhance operational efficiency. Many enterprises have been embarking on enduring digital transformation endeavors, a trajectory poised to intensify with the expanding embrace of hybrid work settings.
Specifically, cloud computing is progressively unsettling enterprises as they transition from in-house hardware-based architecture to cloud-based systems. About 60% of corporate workloads have already migrated to the cloud, and this percentage is anticipated to reach approximately 70% by 2025.
Advancing from established technologies such as applied AI and industrialized machine learning, generative AI is making remarkable progress in reshaping the technology landscape. With the capacity to contribute up to $4.4 trillion in economic value, it amplifies productivity via precise use cases and broader applications.
Furthermore, the burgeoning technological innovations, including the Internet of Things (IoT), 5G networks, blockchain, spatial computing, homomorphic encryption, metaverse, 3D printing, additive manufacturing, and robotics and automation, are poised to drive industry expansion, broadening its horizons to a greater extent.
The information technology market is expected to grow at a CAGR of 7.9% to reach $12 trillion in 2027, as projected by Report Linker.
In light of these encouraging trends, let’s look at the fundamentals of the three Technology Equities ETF picks, beginning with number 3.
ETF #3: First Trust NASDAQ-100-Technology Sector Index Fund (QTEC)
Launched and managed by First Trust Advisors LP, QTEC invests in IT sector stocks, targeting growth and value shares from large-cap companies. It aims to mirror the NASDAQ-100 Technology Sector Index by employing full replication, committing at least 90% of its net assets to index components, including borrowed investments.
With $2.82 billion in Assets Under Management (AUM), QTEC’s top holding is CrowdStrike Holdings, Inc. Class A (CRWD), which has a 3.07% weighting in the fund. It is followed by PDD Holdings Inc. Sponsored ADR Class A (PDD) at 3.05% and Zscaler, Inc. (ZS) at 2.94% weighting. The fund has a total of 39 holdings. It has a beta of 1.17.
QTEC has an expense ratio of 0.57%. Its net inflows came in at $1.01 billion over the past three months and $1.11 billion over the past six months. The ETF’s NAV was $139.09 as of October 25, 2023.
QTEC pays a $0.29 annual dividend yielding 0.20% at the prevailing price level. Its four-year average dividend yield is 0.31 %. The fund has gained 33.1% year-to-date to close the last trading session at $139.15.
QTEC’s POWR Ratings reflect this solid outlook. The ETF’s overall B rating equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
QTEC has an A grade for Peer and a B for Trade. It has ranked #16 in the B-rated 119-ETF Technology Equities ETFs group. Click here to see all of QTEC’s POWR Ratings.
ETF #2: iShares Expanded Tech Sector ETF (IGM)
IGM, launched by BlackRock, Inc. (BLK) and managed by BlackRock Fund Advisors, focuses on U.S. and Canadian public equity markets. It invests in diverse sectors, encompassing consumer discretionary, information technology, software, internet services, hardware, and more.
IGM has $3.12 billion in AUM. It has 279 holdings in total. Alphabet Inc. Class A (GOOGL) has a 9.16% weighting in the fund as its top holding, followed by Microsoft Corporation (MSFT) and Apple Inc. (AAPL) at 8.94% and 8.71%, respectively. The next in line is NVIDIA Corporation (NVDA) at 8.42%.
The ETF’s net inflows were $40.14 million over the past three months. In addition, its 0.41% expense ratio compares favorably to the 0.55% category average. IGM’s NAV was $372.48 as of October 25, 2023. It has a beta of 1.18.
The ETF pays a $1.62 dividend annually, yielding 0.42% at the current price level. Its four-year average dividend yield stood at 0.37%, and its dividends have grown at an 11% CAGR over the past five years. IGM has gained 33.1% year-to-date, closing the last trading session at $372.40.
It’s no surprise that IGM has an overall rating of B, equating to Buy in our proprietary rating system. The ETF has a B grade for Trade and Buy & Hold.
Within the Technology Equities ETFs group, it is ranked #15 out of 119 ETFs. Click here to access all the POWR Ratings for IGM.
ETF #1: Vanguard Communication Services Index Fund (VOX)
VOX, launched and managed by The Vanguard Group, Inc., invests in companies within the communication services sector. Employing a full replication approach, it aims to replicate the MSCI US Investable Market Index (IMI)/Communication Services 25/50, closely tracking its performance.
The fund has $3.40 billion in AUM. Its top holdings are Meta Platforms Inc. Class A (META) with a 20.12% weighting, GOOGL at 12.63%, and Alphabet Inc. Class C (GOOGL) at 10.38%. The fund has a total of 119 holdings.
VOX has an expense ratio of 0.10%, lower than the category average of 0.37%. The fund’s net inflows were $165.48 million over the past three months and $426.87 million over the past year. Moreover, its NAV stood at $103.14 as of October 25, 2023. It has a beta of 1.04.
VOX pays a $1.12 dividend annually, yielding 1.04% at the current price level. Its four-year average dividend yield came in at 0.91%. VOX has gained 24% year-to-date, closing the last trading session at $103.17.
VOX’s POWR Ratings are consistent with its sound fundamentals. The ETF has an overall B rating, translating to Buy in our proprietary rating system.
It has an A grade for Trade and Peer. It is ranked #14 among 119 ETFs within the same group. To access all of VOX’s POWR Ratings, click here.
What To Do Next?
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VOX shares were unchanged in premarket trading Thursday. Year-to-date, VOX has gained 26.59%, versus a 10.18% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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