Technology ETF or Tech ETF refers to the exchange-traded funds, which invests in the growing technologies across the globe. In the 1990s, the world has seen the power of the Internet in full force. Both the IT and BPO industries have emerged as major sectors for technological developments. Thus, these industries have led to technology ETFs.
Technology ETFs can be classified into 3 categories, which are based on their holdings. These include Sub Sectors, Broad Tech Sectors, and Actively Managed Technology ETFs. The Sub Sectors have specific holdings include semi-conductors and software. One of the most prominent Sub Sector Tech ETF is the Goldman Sachs Networking Fund, which is considered a high concentration and liquidity on a sector.
Broad Tech Sectors have an extensive range of technological holdings. More so, these sectors have a substantial portfolio. Two of the most prominent Broad Tech Sectors include S&P Select Sector SPDR Fund and Shares Dow Jones U.S. Technology Fund. S&P Select Sector SPDR Fund holds large tech stocks in the S&P 500 while Shares Dow Jones U.S. Technology Fund is the largest tech ETF as it has the most number of stocks.
From the name itself, Actively Managed Tech ETFs are funds that are managed actively and their performance is updated daily online or through other means of communication. Some of the most prominent Actively Managed Tech ETFs include Software (PSJ), PowerShares Dynamic ETFs, Networking (PXQ), and Semiconductors (PSI).
Just like any other exchange traded funds, tech ETF has advantages and disadvantages. One of its greatest advantages is that is produces large profits with lower investments as compared to other ETFS. Thus, this results to higher return on investment (ROI). On the other hand, the profits gained on tech ETFs may be lower than other types of investment.