Tech ETF

You’re right, of course, that holding market weight is certainly the most sensible starting point, if not the end point. If the market decides that the prices for these stocks should shoot up, I should consider following. But Amazon has a P/E of 132, and Netflix is 93, which are ridiculous numbers! The others have P/E’s of 36, 37, and 38, which also suggests that they could be overvalued. Even if the market thinks they are worth their current prices, I can’t help thinking that there may be better value elsewhere. So I’m happy to keep holding what I’ve already got, but I don’t really want to buy more.

Well, as I see it, I’m not actually trying to underweight them, I’m just trying to avoid overweighting them. In my global stock tracker fund, Apple, Microsoft, Amazon, Facebook, and Alphabet are already the largest holdings and make up 15% of the total. Anyone with a basic global tracker fund already has substantial exposure to those companies at market weight. I would like to increase my tech sector exposure a bit (i’m underweight on tech and telecomms compared with the sector targets that I am following), but I don’t want to become over-concentrated in the same five stocks that I’ve already got a large chunk of in the global tracker.

Of course one could argue that an investor should just hold the broadest possible global tracker, keep everything at market weight, and spend their free time doing something else. But where’s the fun in that? :wink:

Ok that makes sense, I thought you wanted to avoid them, but yeah it makes sense if you have a load of exposure through large index funds already you want to try and find something different, rather than just buying more of the same.

I do agree the prices are concerning, the only thing that makes them feel somewhat acceptable is how expensive everything else is. Even very established firms are trading at high p/es, younger growth stocks are at simply massive p/es, and the only companies trading as sensible figures face severe and fundamental threats.

I do wonder if high P/Es might be a new reality in the medium term while near zero interest rates persist. Collectively we’ve become accustomed to historically low interest rates, but historically high P/Es still feel like a red flag.

Haha yup I often find myself thinking the same thing

@The.Grumpy.Investor has posted a video talking about the merits of different tech ETFs available on Freetrade on YouTube. (He has several other videos too.)

This will be useful to me as I will have a look at the rest of these ETFs having looked at a couple already.

The frustration I have with not being able to invest in the USxxx ISIN ETFs (I know it’s the EU rules) is that none of the IExxx ETFs in tech are weighted the way I want.

If you look at particularly XLK, IYW, these funds are all weighted heavily to FAANG++ stocks.

Over 45% of XLK is in AAPL and MSFT. I like that, because I like both those companies, but I also like the 55% offset by that fund being in V, NVDA, CRM.
Similarly with IYW, 40% of holdings are in AAPL and MSFT, offset by the other 60% in companies like FB, GOOG, CSCO, ADBE.

Has anyone found an IExx ETF in tech they like that’s weighted in a similar way?

Open to suggestions given the limited ETF options on the FT platform.
Always willing to learn.

:+1:t5:

Ok, I was curious about the funds’ FAANG weights too, so I went through the Morningstar pages for the tech ETFs that are available on Freetrade and added a column to the table that I posted above to include the amount of exposure to the FAANG stocks among their top ten holdings. (I only looked at the first screen of their lists of holdings, but this includes the largest exposures in each fund.)

Ticker USA% OCF (%) Number of holdings P/E ratio ESG risk 3yr return 5yr return 10yr return FAANG % in top ten holdings
AIAG Artificial intelligence 75 0.5 70 46 22 2
KLWD Cloud computing 94 0.4 54 101 23 0
FSKY Cloud computing 89 0.6 64 29 22 13
ISPY Cyber security 79 0.75 54 24 21 23 0
DGIT Digitalisation 65 0.4 165 32 21 17 2
EMQP Emerging markets ecommerce 0 0.86 83 38 25 0
EQGB Nasdaq 97 0.35 103 32 22 48
EQQQ Nasdaq 97 0.3 103 32 22 27 29 24 48
ROBG Robotics & automation 45 0.8 86 31 24 10 20 0
RBTX Automation & robotics 54 0.4 129 30 23 13 3
IITU S&P 500 IT sector 100 0.15 71 28 18 29 44

All data from Morningstar.

EMQP is an emerging market (mostly China) fund so it has no FAANGs, but it does have high concentrations of Meituan Dianping, Alibaba, Tencent, MercadoLibre, Naspers, and Pinduoduo.

EQGB/EQQQ track the Nasdaq index (in GBP-hedged and non-hedged versions); they hold Apple 14%, Amazon 11%, Microsoft 11%, Facebook 5%, Alphabet A & C 7%.

IITU is the S&P 500 tech stocks index, it holds Apple 25%, Microsoft 19%.

FSKY, First Trust Cloud Computing, holds Alibaba 5%, Amazon 5%, Microsoft 4%, Alphabet 4%.

The rest of the tech ETFs on Freetrade are plays on smaller companies in their sub-sectors, and hold little exposure to the FAANG giants.

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This was superb work @FailedTuringTest, I have been looking at IITU pretty heavily recently as it’s literally the closest ETF to the aforementioned funds I like in the US (XLK, ARKW, etc).

Really useful work from you to highlight others we might look at.

Greatly appreciated!

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AIAG, EMQP, FSKY, ISPY, KLWD, and ROBG will soon be available only to ‘Plus’ customers (see discussion here). EQGB and EQQQ aren’t on the list of Plus-only ETFs yet, but they are Invesco ETFs and the intention seems to be that free customers will only have access to iShares and Vanguard ETFs, so they might be at risk of being dropped too.

So, of the ETFs listed in the posts above, that leaves DGIT, RBTX, and IITU available to ‘free’ customers, as well as one new one which has just been added: CNX1 iShares NASDAQ 100 UCITS ETF USD (Acc.).

Freetrade just changed their mind and include Invesco etfs in the free tier as well.

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What do you think about ATT Allianz Technology Trust Plc (not ETF but Investment Trust though, actively managed).

Holdings 31/08/2020 % of Assets
Apple Inc 6.6
Amazon.com Inc 4.5
Facebook Inc A 3.6
Tesla Inc 3.5
Zscaler Inc 3.0
CrowdStrike Holdings Inc Class A 2.9
Paycom Software Inc 2.8
Square Inc A 2.7
Twilio Inc A 2.5
Samsung Electronics Co Ltd 2.4

Before coronavirus:

Annual Financial Report for the year ended 31 December 2019 % of Assets
Microsoft 8.0%
Apple 4.5%
Facebook 4.4%
Taiwan Semiconductor 3.6%
Paycom 3.4%
Mastercard 2.9%
Teradyne 2.7%
Samsung Electronics 2.6%
Fortinet 2.4%
Ringcentral 2.4%