Investing in ETFs (exchange-traded funds) has proven time and time again to be one of the best strategies for both beginners and experienced investors. With technology stocks booming over the last few decades, investing in technology ETFs has also been a winning strategy for UK investors.
It removes the need to pick out the next Microsoft (MSFT), Alphabet (GOOGL), or Apple (AAPL) – because you can invest in funds that automatically hold the winners and drop the losers. But, investing in tech ETFs can add a layer of complexity. So we’re going to look at the mechanics of these popular assets and break down all the moving parts so that you can more easily find the best tech ETFs on the market.
This is a type of ETF investment that specialises in technology stocks. Different types of tech ETFs exist, but all will be based on the technology sector (as the name suggests).
It’s worth remembering that the term “technology” can be used broadly, as many businesses use tech in one way or another. But, for the purpose of investing in tech ETFs, the underlying assets should fall within the 3 main groups that the Global Industry Classification Standard (GICS) uses to categorise tech stocks:
If you want to check out the best-performing technology ETFs, take a look at the options below. Just keep in mind that these aren’t necessarily the best tech ETFs to buy in the UK today. Past performance doesn’t dictate future results. The under-performers may do well over the next few years.
| ETF | Icon | 5-year performance | YTD performance (to 5 August 2024) | Link to invest |
|---|---|---|---|---|
| Amundi MSCI Semiconductors ESG Screened UCITS ETF Acc (SEMG) |  | 197.80% | 31.80% | Invest with InvestEngineCapital at risk |
| Invesco US Technology Sector UCITS ETF (XLKQ) |  | 193.81% | 21.31% | Invest with InvestEngineCapital at risk |
| iShares S&P 500 Information Technology Sector UCITS ETF USD (Acc) (IITU) |  | 184.80% | 19.01% | Invest with SaxoCapital at risk |
| Xtrackers MSCI USA Information Technology UCITS ETF 1D (XSTC) |  | 166.30% | 15.20% | Invest with SaxoCapital at risk |
| Amundi MSCI World Information Technology UCITS ETF USD Acc (TNOW) | | 162.85% | 21.94% | Invest with HLCapital at risk |
All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
This category of ETF works exactly the same as any other exchange-traded fund. Each tech ETF will be set up to contain a basket of securities. It may focus on a specific region, or cover a technology niche. By purchasing shares in a technology ETF, a portion of your investment will go to each company held in the fund. These funds are then listed on a stock exchange, allowing investors to buy or sell them.
The exact stocks held in a tech ETF will depend on whether the fund mirrors a particular index, or if there is some kind of active management picking the shares. Most technology ETFs will be “market capitalisation weighted”. So, the bulk of your investment will go to the biggest holdings (based on market cap).
Here are some examples of the most popular types of technology ETFs that UK investors tend to look at when searching for the best tech investments:
Many technology ETFs invest in a broad range of stocks from across the full spectrum of possibilities. Yet, there are also plenty of tech ETFs that focus on very specific areas or themes. These ETFs tend to take more research, and come with a higher-risk, higher-reward trade-off.
To give you an idea about some of the current possibilities, you can find technology ETFs that invest in sub-sectors such as:
Investing in technology ETFs can be extremely straightforward (and cheap in most cases). If you’re a UK investor and want to start putting money into the best tech ETFs, just follow this step-by-step guide:
Like with any investment, there are always risks to consider. Tech ETFs are no different, and below are some of the key risks you need to think about before investing:
"The right tech ETF to use for your portfolio is going to depending on your strategy and goals, along with what the rest of your portfolio looks like. If you do a deep dive into your portfolio, you might find that you’re already investing in a number of tech stocks through other funds and investments. So, you may not want to double up on certain stocks and potentially overexpose yourself. It’s often better to look for tech ETFs that cover stocks you may not already be holding (or have a very small allocation of).
If you’re looking for the best starting point, technology ETFs that mirror the top stocks in something like the Nasdaq 100 can be a useful place to begin. If you’re looking for some more advanced exposure to technology stocks, you may need to take a bit of time to find the right ETF that will suit your goals and beliefs – just make sure you don’t blindly jump into a tech ETF, take a moment to see what it holds and think about how those investments will align with the rest of your portfolio."
It depends on what you’re looking for. If you want to build a portfolio that contains some of the best technology stocks on the market, an ETF can be a great way to set up a tech portfolio with minimal legwork. You still need to do your research and make sure any tech ETF fits on your plate when it comes to risk appetite. But in most cases, it can be a safer route than picking a handful of individual tech stocks because you typically get more diversity with an ETF.
However, not all tech ETFs are cut from the same cloth. If you decide to invest in a heavily specialised technology ETF, you’re putting yourself at the mercy of that niche. If you concentrate on a small area of tech with an ETF, you could maximise your profits, but it could also lead to increased losses if you pick a sub-sector that becomes unprofitable.
Using technology ETFs can be an excellent way to build yourself a portfolio containing some of the best tech stocks on the market. Doing this will involve less time and effort than picking out individual shares. However, finding the best tech ETFs can still be difficult, and most will be a higher-risk investment than a more broadly diversified exchange-traded fund.
Investing in a tech ETF can reduce some risk by spreading your bets, but the opportunity cost is that your returns will likely be smaller than if you had successfully backed a few top tech firms. It’s all about finding balance and meeting your investing goals. If you do want a cheap and efficient way to invest in the current, and next-best technology stocks, then using an ETF is definitely a great place to start.
Sadly, no. Like with any investment, there is a chance that you’d get out less than what you put in. Your timeframe will partly determine whether you make money or not. The longer you hold a technology ETF, the greater chance you’ll give yourself of making long-term returns.
Based on its 5 year performance, the best tech ETF in the UK is the Amundi MSCI Semiconductors ESG Screened UCITS ETF.
Some will. It’s always best to check the details of the technology ETF, ideally in the Key Information Document (KID) to get an idea about whether the ETF pays a dividend. Keep in mind that even if an ETF attempts to pay dividends, these payments aren’t guaranteed and depend on the performance of the companies held in the fund. Also, most tech companies tend to spend money fuelling further growth rather than paying dividends.
Currently, there’s only one specific Vanguard technology ETF. It’s called the “Vanguard Information Technology ETF (VGT)”. So, this is the best Vanguard technology ETF because it’s the only option. To learn more about Vanguard ETFs, read our guide.
Ever wondered how to invest in IITU ETF? Learn more about iShares S&P 500 Information Technology Sector UCITS ETF now and find out where you can invest in it. Compare ETF brokers to start investing today.
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