A List Of The Top Ten Technology Sector ETFs (SMH, XLK, FDN, QTEC, QQQ, CSCO, AAPL, GOOG, MSFT, T)

David Fry:  Our goal in this profile is to help investors wade through the many competing ETF offerings available. Using our long experience as an ETF publication, we can help select those ETFs that matter and may not be repetitive. The result is a more manageable list of issues from which to view and make selections.

There are currently nearly three dozen ETFs oriented to the technology sector with more on the way. The following analysis features a fair representation of ETFs available. We believe from these investors may choose an appropriate ETF to satisfy the best index-based offerings individuals and financial advisors may utilize.

We’re not ranking these ETFs favoring one over another so don’t let the listing order mislead you. Although we may use some of these in ETF Digest portfolios, it’s not our intention to recommend one over another.

ETFs are based on indexes tied to well-known index providers including Russell, S&P, Barclays, MSCI, Dow Jones and so forth. Also included are some so-called “enhanced” indexes that attempt to achieve better performance through more active management of the index.

We prefer not to use HOLDRS but the continuing popularity, liquidity and trading ease with an issue like ML Semiconductor HOLDRS (AMEX:SMH) trumps this concern at least in this instance. For the most part we’ll stick with ETFs.

Where competitive issues exist and/or repetitive issues available at a fee cost saving we mention those as other choices. New issues are coming to market consistently (especially globally) and sometimes these issues will need to become more seasoned before they may be included at least in our listings.

For traders and investors wishing to hedge, leveraged and inverse issues are available to utilize from ProShares and Direxion and where available these are noted.

SPDR Technology Sector ETF (NYSE:XLK) follows the Technology Select Sector Index which basically breaks down the S&P 500 to those companies involved in all technology and relevant subsectors. The fund was launched December 1998. It was the first and remains the largest technology only ETF. AUM (Assets under Management) are over $7.7 billion while average daily trading volume is over 10.5M shares. The expense ratio is .20%. Through July 7, 2011 the annual dividend remains at $.33 making the yield 1.26% and YTD return 5.12%.

Direxion and ProShares have leveraged long and inverse issues available for trading or hedging.

Data as of July 2011

XLK Top Ten Holdings & Weightings

  1. Apple, Inc. (NASDAQ:AAPL): 12.27%
  2. International Business Machines Corp (NYSE:IBM): 8.21%
  3. Microsoft Corporation (NASDAQ:MSFT): 7.63%
  4. AT&T, Inc. (NYSE:T): 7.35%
  5. Oracle Corporation (NASDAQ:ORCL): 5.10%
  6. Google, Inc. (NASDAQ:GOOG):5.03%
  7. Verizon Communications Inc (NYSE:VZ): 4.18%
  8. Intel Corp (NASDAQ:INTC): 3.96%
  9. Qualcomm, Inc. (NASDAQ:QCOM): 3.77%
  10. Cisco Systems, Inc. (NASDAQ:CSCO): 3.39%

Vanguard Information Technology ETF (NYSE:VGT) follows the MSCI US Investable Market Information Technology 25/50 Index. The index consists of small to large companies in the broad technology space including various sectors and subsectors. The fund was launched January 2004. The expense ratio is .25%. AUM are near $2 billion with average daily trading volume only 162K shares. This indicates a high level of buy and hold investors primarily from financial advisors and planners. Through July 7, 2011 the annual dividend is $.36 making the current yield .55% and YTD return of 6.29%.

Data as of July 2011

VGT Top Ten Holdings & Weightings

  1. Apple, Inc. (AAPL): 11.71%
  2. International Business Machines Corp (IBM): 7.42%
  3. Microsoft Corporation (MSFT): 7.16%
  4. Google, Inc. (GOOG): 5.34%
  5. Oracle Corporation (ORCL): 4.92%
  6. Intel Corporation (INTC): 4.12%
  7. Cisco Systems, Inc. (CSCO): 3.48%
  8. Hewlett-Packard Company (HPQ): 3.41%
  9. Qualcomm, Inc. (QCOM): 3.25%
  10. EMC Corporation (EMC): 2.00%

Dow Jones U.S. Technology ETF (NYSE:IYW) follows the index of the same name. The fund was launched May 2000. The expense ratio is .48%. AUM are $1.4 billion and average daily trading volume is 173K shares. As of July 2011 the annual dividend is $.26 making the current yield .38%. The YTD return for the period was 4.68%.

Alternative choices with similar characteristics include SPDR MS Technology ETF (NYSE:MTK) which follows the Morgan Stanley Technology Index. The expense ratio is .50%.  iShares S&P/GSTI Technology ETF (NYSE:IGM) follows the index of the same name. The expense ratio is .48%. Both ETFs have achieved similar rates of return with similar holdings.

Data as of July 2011

IYW Top Ten Holdings & Weightings

  1. Apple, Inc. (AAPL): 13.88%
  2. International Business Machines Corp (IBM): 9.43%
  3. Microsoft Corporation (MSFT):            8.76%
  4. Oracle Corporation (ORCL): 5.68%
  5. Google, Inc. (GOOG): 5.67%
  6. Intel Corp (INTC): 5.48%
  7. Qualcomm, Inc. (QCOM): 4.21%
  8. Cisco Systems, Inc. (CSCO): 3.90%
  9. Hewlett-Packard Co (HPQ): 3.57%

First Trust NASDAQ 100 Technology ETF (NASDAQ:QTEC) follows the NASDAQ 100 Technology Sector Index which strips away other sectors found in the popular QQQ ETF. The fund was launched in April 2006. The expense ratio is .60%. AUM are $572 million while average daily trading volume is 220K shares. As of July 2011 the annual dividend is $.16 making the current yield .60%. The YTD return has been 3.37%.  A unique factor for QTEC is the more equal weightings of constituent members versus other ETFs which have heavy weightings in more visible issues like Apple. QTEC only has 40 holdings which account for this type of weighting.

Most investors believe the logical alternative to QTEC is PowerShares NASDAQ 100 ETF (NASDAQ:QQQ). It follows the NASDAQ 100 Index which includes the largest 100 nonfinancial companies listed on the NASDAQ. But it’s not a pure technology play with nearly 30% of constituents in other sectors.

Data as of July 2011

QTEC Top Ten Holdings & Weightings

  1. Citrix Systems, Inc. (CTXS): 3.08%
  2. Seagate Technology PLC (STX): 2.98%
  3. Altera Corp. (ALTR): 2.83%
  4. F5 Networks, Inc. (FFIV): 2.74%
  5. BMC Software, Inc. (BMC): 2.73%
  6. Cerner Corporation (CERN): 2.73%
  7. Check Point Software Technologies, Ltd. (CHKP): 2.68%
  8. NVIDIA Corporation (NVDA): 2.66%
  9. Qualcomm, Inc. (QCOM): 2.65%
  10. Symantec Corporation (SYMC): 2.65%

First Trust Internet ETF (NYSE:FDN) is linked to the Dow Jones Internet Index which demands a constituent company must have 50% of its revenues from the internet. It was launched in June 2006. The expense ratio is .60%. AUM equal $737M and average daily trading volume is over 230K shares. In our opinion this ETF provides the greatest exposure to companies in this important sector. As of July 7, 2011 the annual dividend was $.08 making the yield around .20%. The YTD return was roughly 9.75%.

An alternative selection might include ML Internet Architecture (AMEX:IAH) and ML Internet Holders (AMEX:HHH). Both holders are trusts and as such hold heavy weightings in just a few issues and can’t add new issues to their holdings. A good example of this is Google as an important new issue coming to market after the launch of these HOLDR’s.

Data as of July 2011

FDN Top Ten Holdings & Weightings

  1. Google, Inc. (GOOG): 8.53%
  2. Amazon.com, Inc. (AMZN): 8.10%
  3. eBay Inc (EBAY): 5.60%
  4. Priceline.com, Inc. (PCLN): 5.23%
  5. Salesforce.com, Inc. (CRM): 4.74%
  6. Yahoo, Inc. (YHOO): 4.39%
  7. Netflix, Inc. (NFLX): 4.39%
  8. Juniper Networks, Inc. (JNPR): 4.09%
  9. Check Point Software Technologies, Ltd. (CHKP): 3.52%
  10. Expedia, Inc. (EXPE): 3.07%

iShares Software ETF (NYSE:IGV) tracks the S&P North American Technology Software Index. The fund was launched in July 2001. The expense ratio is .48%. AUM equal $535 million and average daily trading volume is roughly 112K shares. As of July 2011 there haven’t been any dividends. The YTD return 11.14%.

Alternative choices include ML Software HOLDR (AMEX:SWH) and PowerShares Dynamic Software ETF (NYSE:PSJ). The latter tracks the Dynamic Software Intellidex Index an enhanced index which seeks to more actively manage the constituents via quantitative methodologies.

Data as of July 2011

IGV Top Ten Holdings & Weightings

  1. Microsoft Corporation (MSFT):  8.87%
  2. Oracle Corporation (ORCL): 8.50%
  3. Salesforce.com, Inc. (CRM): 6.73%
  4. Adobe Systems Inc. (ADBE): 5.94%
  5. Citrix Systems, Inc. (CTXS): 5.63%
  6. Symantec Corporation (SYMC): 5.58%
  7. Intuit, Inc. (INTU): 4.41%
  8. BMC Software, Inc. (BMC): 3.69%
  9. Autodesk, Inc. (ADSK): 3.40%
  10. Red Hat, Inc. (RHT): 3.38%

iShares Networking ETF (NYSE:IGN) tracks the S&P North American Technology-Multimedia Networking Index. The fund was launched in July 2001. The expense ratio is .48%. AUM equal nearly $270 million with average daily trading volume 120K shares. As of July 2011 there has been no dividend and the YTD return has equaled -3.10%.

An alternative choice is PowerShares Dynamic Networking ETF (NYSE:PXQ) which tracks the Dynamic Networking Intellidex Index. The YTD return for PXQ as of July 2011 was 9.60%. The difference in performance is due to a lower weighting in Cisco (NASDAQ:CSCO) and other underperforming constituents. This makes the enhancement of the index methodology much more effective in this case. Below you can see clearly the differences between the two choices in the networking sector. Which would you rather own?

Data as of July 2011

IGN Top Ten Holdings & Weightings

  1. Cisco Systems, Inc. (CSCO): 8.67%
  2. Qualcomm, Inc. (QCOM): 8.63%
  3. Motorola Solutions, Inc. (MSI): 8.58%
  4. Juniper Networks, Inc. (JNPR): 8.39%
  5. Research in Motion Ltd (RIMM): 6.52%
  6. Riverbed Technology, Inc. (RVBD): 5.08%
  7. Polycom, Inc. (PLCM): 4.81%
  8. F5 Networks, Inc. (FFIV): 4.55%
  9. Harris Corporation (HRS): 4.40%
  10. Motorola Mobility Holdings, Inc. (MMI): 4.24%

Data as of July 2011

PXQ Top Ten Holdings & Weightings

  1. Motorola Solutions, Inc. (MSI): 6.24%
  2. Citrix Systems, Inc. (CTXS): 6.14%
  3. VMware, Inc. (VMW): 5.65%
  4. Symantec Corporation (SYMC): 5.35%
  5. Qualcomm, Inc. (QCOM): 4.93%
  6. Amphenol Corporation (APH):4.72%
  7. Cisco Systems, Inc. (CSCO): 4.48%
  8. Juniper Networks, Inc. (JNPR): 4.14%
  9. Netgear, Inc. (NTGR): 3.52%
  10. OPNET Technologies, Inc. (OPNT): 3.37%

iShares PHLX SOX Semiconductor ETF (NASDAQ:SOXX) tracks the popular PHLX Semiconductor Index. The fund was launched in October 2001. The expense ratio is .48%. AUM equal nearly $200 million and daily trading volume is just under 250K shares. As of July 2011 the annual dividend is $.36 and YTD return is -.32%.

The logical alternative is ML Semiconductor HOLDR (NYSE:SMH) which is much more popular and better traded than SOXX. We choose to focus on ETFs when possible but can’t ignore the consistently better behavior overall for SMH which is widely followed by active traders. AUM are over $1.4 billion and average daily trading volume is over 10M shares. YTD performance as of July 2011 is superior as well at 5.56%. Below you can see the inequality of weightings which can pose greater returns and risks.

Data as of July 2011

SOXX Top Ten Holdings & Weightings

  1. Intel Corp (INTC): 8.53%
  2. Applied Materials, Inc. (AMAT): 8.09%
  3. Texas Instruments, Inc. (TXN): 8.06%
  4. Broadcom Corporation (BRCM): 7.66%
  5. Altera Corp. (ALTR): 7.05%
  6. Avago Technologies Limited (AVGO):             4.87%
  7. Xilinx, Inc. (XLNX): 4.43%
  8. Linear Technology (LLTC): 4.14%
  9. Taiwan Semiconductor ADR (TSM): 4.00%
  10. Marvell Technology Group, Ltd. (MRVL): 3.94%

Data as of July 2011

SMH Top Ten Holdings & Weightings

  1. Texas Instruments, Inc. (TXN): 21.24%
  2. Intel Corporation (INTC): 18.94%
  3. Applied Materials, Inc. (AMAT): 10.89%
  4. Altera Corp. (ALTR): 7.99%
  5. Analog Devices, Inc. (ADI): 6.67%
  6. Xilinx, Inc. (XLNX): 4.83%
  7. Linear Technology (LLTC): 4.77%
  8. National Semiconductor (NSM): 3.98%
  9. KLA-Tencor Corporation (KLAC): 3.57%
  10. Atmel Corporation (ATML): 3.32%

First Trust Technology AlphaDEX ETF (NYSE:FXL) follows the StrataQuant Technology Index which focuses on those select technology stocks in the Russell 1000 Index. From this they employ an enhanced strategy to select and modify the index. The fund was launched in May 2007. The expense ratio is .70%. AUM equal $170 million and average daily trading volume is over 140K shares. As of July 2011 the dividend has been negligible but the YTD return has been 5.02%.

Data as of 2011-07-06

FXL Top Ten Holdings

  1. Varian Semiconductor Equipment Assoc, Inc. (VSEA): 2.52%
  2. Seagate Technology PLC (STX): 2.33%
  3. Intel Corp (INTC): 2.23%
  4. Polycom, Inc. (PLCM):             2.21%
  5. Arrow Electronics, Inc. (ARW): 2.13%
  6. AVX Corporation (AVX): 2.11%
  7. Ciena Corporation (CIEN): 2.06%
  8. Western Digital Corporation (WDC): 1.97%
  9. Corning Inc. (GLW): 1.95%
  10. JDS Uniphase Corporation (JDSU): 1.94%

PowerShares Dynamic Technology ETF (NYSE:PTF) follows the Dynamic Technology Sector Intellidex Index. The fund was launched in October 2006. The expense ratio is .60%. AUM are $48 million making it one of the smaller ETFs in the sector. Average daily trading volume is 12K shares. As of July 2011 the dividend has been negligible but the rate of return is over 8%.

Data as of July 2011

PTF Top Ten Holdings & Weightings

  1. Agilent Technologies, Inc. (A): 2.95%
  2. BMC Software, Inc. (BMC): 2.86%
  3. Automatic Data Processing (ADP): 2.78%
  4. Symantec Corporation (SYMC): 2.70%
  5. International Business Machines Corp (IBM): 2.61%
  6. TE Connectivity Ltd (TEL): 2.59%
  7. Fiserv, Inc. (FISV): 2.57%
  8. Apple, Inc. (AAPL): 2.50%
  9. Texas Instruments, Inc. (TXN): 2.48%
  10. Paychex, Inc. (PAYX): 2.45%

Technology and innovations in the sector remain a primary focus for investors. Clearly this sector will remain the leading source of innovation and economic growth in the U.S. and globally as well. As the sector expands overseas we’ll no doubt offer a review for these issues in another profile.

Investors should note that in a rising market particularly ETFs linked to enhanced issues will tend to outperform conventional index linked issues. I’ve not done enough analysis to determine their relative strength during down market periods.

New ETFs from highly regarded and substantial new providers are also being issued. These may include Charles Schwab’s ETFs and Scottrade’s Focus Shares which both are issuing new ETFs with low expense ratios and commission free trading at their respective firms. These may also become popular as they become seasoned.

For further information about portfolio structures using this or other ETFs see http://www.etfdigest.com/.

You may address any feedback to: [email protected] This e-mail address is being protected from spambots. You need JavaScript enabled to view it

(Source for holding data is from ETF Database and from various sponsors.)

Written By David Fry From ETF Digest 

David is founder and publisher of ETF Digest and best selling book author of Create Your Own ETF Hedge Fund, A DIY Strategy for Private Wealth Management published by Wiley Finance in 2008.  In July of 2009, Fry was named in the ETF Hall of Fame as one of the Top 25 people who revolutionized the ETF industry and guided ETF investing from its conception to widespread acceptance among all breeds of investors. Fry founded the ETF Digest in 2001 and was among the very first to see the need for an online publication that provided individual investors and financial professionals with trading tools, market information and actionable advice on ETF investing.  ETF Digest was recently ranked 9th in the Top 100 ETF websites from Alexa on exchange traded funds. Dave Fry has devoted over 35 years to the business of trading and portfolio management. He is registered as an arbitrator with the Financial Industry Regulatory Authority (FINRA) and the National Futures Association (NFA).

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