Continued advancements in technology make the technology industry one of the most closely tracked sectors for investment. While this could be the right time to invest in the space, the high-interest rate environment could have varied impacts on different tech businesses, making it risky to invest in specific stocks.
Moreover, given their enormous growth potential, most tech names trade at an expensive valuation. Therefore, a relatively safer approach to capitalize on the industry’s promising growth prospects could be to have exposure to buckets of tech stocks by investing in promising tech ETFs.
To that end, Innovator Growth Accelerated Plus ETF - July (QTJL), First Trust NASDAQ Technology Dividend Index Fund (TDIV), and iShares Semiconductor ETF (SOXX) could be wise portfolio additions now.
Before diving deeper into these ETFs, let’s discuss what’s happening in the tech space.
Despite the high-interest rate environment, tech stocks have had a stellar run this year, with the tech-heavy Nasdaq Composite returning 36.2% year-to-date. The hype around generative AI has primarily fueled Nasdaq’s surge. Generative AI is being billed as the next big thing after the Internet.
Spending on tech has become almost non-discretionary for enterprises. Technology provides organizations with the required edge to get ahead of the competition. Gartner expects worldwide IT spending to grow 3.5% year-over-year to $4.69 trillion in 2023. It is further expected to grow 8% year-over-year to $5.07 trillion in 2024.
The rise in IT spending could be attributed to the rapid adoption of digital transformation initiatives across various industries. The global digital transformation market is expected to grow at a CAGR of 26.7% to reach $4.62 trillion by 2030.
As part of the digital transformation initiative, enterprises swiftly transition from traditional software applications to cloud-based software services. Cloud technology aims to provide rapid, scalable access to computing resources and IT services.
According to Gartner, software and IT services segments will see double-digit growth in 2024, driven by cloud spending. Global spending on public cloud services is forecast to increase 20.4% in 2024.
Investing in tech ETFs could expose investors to emerging technologies in the market, such as cloud computing, generative AI, AR & VR, blockchain, cybersecurity, edge computing, etc.
Considering these conducive industry trends, let’s evaluate the three Technology Equities ETF picks, starting with number 3.
ETF #3: Innovator Growth Accelerated Plus ETF - July (QTJL)
QTJL is managed by Innovator Capital Management, LLC. The fund invests through derivatives in stocks of companies operating across communication services, consumer discretionary, consumer staples, energy, health care, industrials, information technology, materials, real estate, and utilities sectors. It uses derivatives such as Flexible Exchange Options that reference the Invesco QQQ Trust, Series 1, to create its portfolio.
With $18.80 million in assets under management, QTJL’s top holding as of November 30, 2023, is Options, with a 99.78% weighting, followed by U.S. Dollar, with a 0.22% weighting. It has a total of 2 holdings.
QTJL’s has an expense ratio of 0.79%. QTJL’s fund inflows were $9.43 million over the past six months. It currently has a NAV of $26.95.
QTJL has gained 37.2% year-to-date and 31.6% over the past year to close the last trading session at $26.86.
QTJL’s POWR Ratings reflect this promising outlook. The ETF’s overall A rating equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
QTJL has an A for Buy & Hold, Peer, and Trade. Of the 119 ETFs in the A-rated Technology Equities ETFs group, it is ranked #52. Click here to access all of QTJL’s POWR Ratings.
ETF #2: First Trust NASDAQ Technology Dividend Index Fund (TDIV)
TDIV is managed by First Trust Advisors LP. It invests in stocks of companies operating across information technology and communication services sectors. It invests in dividend-paying stocks of companies. It seeks to track the performance of the NASDAQ Technology Dividend Index.
With $2.10 billion in AUM, the fund has 84 holdings. TDIV’s top holding as of November 28, 2023, is Microsoft Corporation (MSFT), with a 9.24% weighting, followed by International Business Machines Corporation (IBM), with an 8.39% weighting, and Broadcom Inc. (AVGO), with 8.11%.
TDIV has an expense ratio of 0.50%, lower than the category average of 0.57%. It currently has a NAV of $60.81. Its fund inflows were $69.82 million over the past six months and $128.48 million over the past year.
The fund’s annual dividend of $1.08 yields 1.78% on the current share price. Its four-year average yield is 2.12%. Its dividend payouts have increased at a CAGR of 4.4% over the past three years and 4.5% over the past five years.
TDIV has gained 27.3% year-to-date and 23% over the past year to close the last trading session at $60.80.
TDIV’s strong outlook is reflected in its POWR Ratings. The ETF has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
It has an A grade for Buy & Hold, Peer, and Trade. It is ranked #16 in the same group. To access all the POWR Ratings for TDIV, click here.
ETF #1: iShares Semiconductor ETF (SOXX)
SOXX is an ETF launched by BlackRock, Inc. It is managed by BlackRock Fund Advisors. The fund invests in stocks of companies operating across information technology, semiconductors and semiconductor equipment sectors. It seeks to track the performance of the NYSE Semiconductor Index.
With $9.46 billion in AUM, SOXX’s top holding is Advanced Micro Devices, Inc. (AMD), with a 9.17% weighting, followed by AVGO, with an 8.14% weighting, and Intel Corporation (INTC), with 7.78%. It has a total of 30 holdings.
SOXX has an expense ratio of 0.35%, lower than the category average of 0.57%. SOXX’s fund inflows were $28.16 million over the past three months and $424.32 million over the past year. It currently has a NAV of $517.21.
The fund’s annual dividend of $4.45 yields 0.87% on the current share price. Its four-year average yield is 0.97%. Its dividend payouts have increased at a CAGR of 11.8% over the past three years and 15.9% over the past five years.
SOXX has gained 48.7% year-to-date and 41.3% over the past year to close the last trading session at $517.26.
SOXX’s solid prospects are reflected in its POWR Ratings. The ETF has an overall A rating, which equates to a Strong Buy in our proprietary rating system.
It also has an A grade for Buy & Hold and Trade and a B for Peer. It is ranked #5 within the Technology Equities ETFs group. Click here to access all of SOXX’s POWR Ratings.
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SOXX shares rose $2.24 (+0.43%) in premarket trading Thursday. Year-to-date, SOXX has gained 50.52%, versus a 20.66% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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