Tech ETF

What is everyone’s favourite tech ETF currently on FT?

(/any you want added)

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I currently hold two tech ETFs at another broker: WTEC SPDR MSCI World Technology, and EBUY Lyxor MSCI Digital Economy ESG Filtered. WTEC is driven by the FAANG giants, while EBUY is my attempt to buy a little more diversity in the tech sector with an ESG twist.

One ETF on Freetrade that strikes me as potentially interesting is DGIT iShares Digitalisation. It looks like it has a diverse mix of IT subsectors but also delivery companies that ought to do well in the brave new e-commerce world. But I haven’t researched it or the others available through Freetrade in detail yet. Would like to see other opinions!

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HAN-GINS Tech Megatrend Equal Weight UCITS ETF very diversified FAANGs are less than 5%

That fund (ITEK) is not available on Freetrade, I think? I like that it’s an equal-weight fund, that’s great when seeking diversity to balance out the tech giants. The OCF is 0.59%, though, which is more expensive than what I usually aim for.

I feel as if I am talking myself into buying DGIT… it’s also an equal-weight fund, it has 166 holdings (ITEK has 86), and the OCF is 0.4%, which is about my limit – at that level, it would be the most expensive ETF I hold except for one investment trust which has turned out to be a mistake on performance as well, but that’s another story…

check the performance

Without the weight of the FAANG giants, neither ITEK nor DGIT comes close to the global benchmark!

tech
(from Morningstar)

surprised no one has mentioned EQQQ - invesco’s ETF which tracks the Nasdaq.

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what goes up must come down. you buy Equally weighted to avoid the inevitable falls from grace and more diversification. unfortunately in investment you cant have your cake and eat it. ITEK!

huge FAANG exposure.

Smaller cap stocks are considered more risky and they are overweight in an equally weighted fund so I’m not sure I would agree that it protects you from falls from grace.

The flip side is of course that you should expect a return premium for taking on that risk

if you are comparing the FAANGS then that means most stocks are smaller. The market cap of the FAANGS is more than the FTSE100. So not sure if the point is valid.

I have lots of tech ETF faves, but to my dismay, very few of them exist on Freetrade.
Some examples are:

  • IYW
  • XLK
  • SMH
  • HACK
  • CLOU
  • ARKK
  • ARKW

does anyone have any suggestion for similar funds to these?

Some of these are the best tech funds out there IMO, some are top loaded with FAANG, some are much more evenly balanced. Some are large-cap, others are multi-cap. And they are offered across a number of issuers. A few also provide limited dividend.

To be honest, it’s a real shame that Freetrade offer none of them.

I’m curious if we can raise a request for all/some of them.
I feel like we would all certainly benefit.

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It would be nice if one could select ETFs by sector in the app… but scrolling through them, unless I’ve missed any I think these are the tech-related ETFs available on Freetrade:

AIAG - L&G Artificial intelligence
KLWD - WisdomTree Cloud computing
FSKY - First Trust Cloud computing
ISPY - L&G Cyber security
DGIT - iShares Digitalisation
EMQP - Hanetf Emerging Markets Internet & Ecommerce
EQGB - Invesco Nasdaq 100 (GBP hedged)
EQQQ - Invesco Nasdaq 100
ROBG - L&G Robo Global Robotics and Automation
RBTX - iShares Automation & Robotics
IITU - iShares S&P 500 Information Technology Sector

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sorry?

facebook alphabet amazon etc

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oh makes sense now. But these are all super strong companies.

Netflix seems to be a bit out of place in the acronym

And Microsoft is a weird omission

I looked up some data on the tech ETFs that are available through Freetrade:

Ticker USA% OCF (%) Number of holdings P/E ratio ESG risk 3yr annualised return 5yr annualised return 10yr annualised return
AIAG 75 0.5 70 46 22
KLWD 94 0.4 54 101 23
FSKY 89 0.6 64 29 22
ISPY 79 0.75 54 24 21 23
DGIT 65 0.4 165 32 21 17
EMQP 0 0.86 83 38 25
EQGB 97 0.35 103 32 22
EQQQ 97 0.3 103 32 22 27 29 24
ROBG 45 0.8 86 31 24 10 20
RBTX 54 0.4 129 30 23 13
IITU 100 0.15 71 28 18 29

Data are from Morningstar. The columns are the proportion of the ETF in USA stocks (I’m interested in that because I already have an ETF that tracks the MSCI World Technology index which consists 85% of USA stocks so I am looking for diversification), the OCF (lower is better), the number of holdings (because I am looking for diversification), the P/E ratio (lower is better), the ESG risk (a score out of 50, lower is better), and the 3-year, 5-year, and 10-year annualised returns (higher is better!). Most of these ETFs are quite new so don’t have a track record yet. I like low-cost funds so I normally rule out anything with an OCF above 0.5%. I already have another tech fund that tracks the MSCI World Technology index and is 87% invested in USA stocks, and I am wary of buying in to the funds that are heavily dominated by the FANMAG stocks because I would feel like a mug chasing after stocks that have already shot up in price (TSLA, I’m looking at you!). I would rather set a wide net to try to catch the next big fish. So for my purposes I am drawn to the funds that are more global in outlook, which means DGIT and RBTX. And so I am still leaning towards DGIT, because of its broader range of holdings and slightly higher performance.

I have to admit that I was surprised by something I discovered when I was doing this: I looked into the holdings of the fund that I currently own which tracks the MSCI World Technology index, and discovered that it holds large amounts of Apple and Microsoft, but not the other FANMAG stocks. That hasn’t been a problem, the tech fund is up 36% in the past 12 months anyway, but I was surprised to discover that I was less invested in the other FANMAGs than I thought I was. There’s always more research to be done!

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Would you not have thought the same 1 year ago, what about 5 years ago? How about 10 years ago?

It seems very strange that there is such an emphasis on under-weighting these particular companies, when you could have made the exact same arguments 5 years ago (they were already massive and had grown explosively) and you would have missed out huge returns.

I do have my concerns about them, especially Apple recently (because of the stock-split hype), but not enough to effectively short them by under-exposing myself to them.

1 year ago I really wanted to invest in Amazon, because I thought they still had great potential but the price was just too high for me. Instead I bought JD.com because I saw it as buying Amazon 10 years ago, with all the risks and potential upside associated with it.

In that year JD.com has returned +160% but over the same time Amazon has grown by 95%. JD could have completely collapsed for many reasons (e.g. massive debt), I took on perhaps 20X the risk for an extra 60% return - that was not a good decision, the outcome being good does not mean that what I did was sensible at the time.

GICS reclassified lots of the ‘tech’ companies as communication so the MSCI indices won’t include lots of the traditional ‘tech’ companies.