Investors harboring doubts about the Magnificent 7’s future within their tech stock lineup find themselves in good company. The concerns around inflated valuations and the concentrated influence of a few tech stocks are valid as inflation eases and rate cuts loom.
Despite these worries, the tech sector is a vast realm filled with boundless opportunities for sustained growth, unlike the static nature of utilities. Technological innovation and adaptability are ingrained in its DNA, promising a trajectory of advancement.
Yet, the peril of placing all your eggs in the top tech stocks’ basket cannot be overlooked. It’s a perilous path to walk, one that exposes your investments to potential disaster. Instead, consider these tech-focused ETFs as strategic additions to your investment arsenal — offering a blend of exposure, potential gains, and risk diversification crucial for a robust portfolio.
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Expense Ratio: 0.40% or $40 yearly on a $10,000 investment
While overlooking healthcare tech ETFs like the iShares U.S. Medical Devices ETF (IHI), investors miss out on an easy avenue to access growth prospects in two powerhouse sectors: technology and healthcare. Market pundits tout healthcare as a top investment theme for 2024, making IHI’s fusion of industry stalwarts and emerging tech disruptors a compelling choice. The fund’s composition places it at the nexus of commanding the innovative potential of burgeoning HealthTech stocks while leveraging the stability provided by established players.
The intricacies of the healthcare landscape with its rapid embrace of artificial intelligence, automation, and other tech innovations make cherry-picking individual stocks a daunting task — particularly for the less initiated in healthcare. The distinction between a promising name like Intuitive Surgical (NASDAQ:ISRG) and a cautionary tale akin to Theranos is a fine line to tread. This complexity is precisely why tech ETFs emerge as a preferable route for many retail investors, with IHI emerging as a top contender in this domain.
Delving into SPDR Portfolio S&P 600 Small Cap ETF (SPSM)
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Expense Ratio: 0.03% or $3 annually on a $10,000 investment
Although not a purist in the tech realm, the SPDR Portfolio S&P 600 Small Cap ETF (SPSM) carves out a significant space within its holdings for robust small-cap tech players such as Fabrinet (NYSE:FN) and SPS Commerce (NASDAQ:SPSC). Opting for this small-cap ETF for its tech exposure serves as a savvy move to counterbalance the risk associated with large- and mega-cap tech stocks prevalent in the S&P 500 and Nasdaq-100.
As the Nasdaq-100 flaunts a P/E ratio of 28, the modest average P/E ratio of around 14 held by SPSM shines a spotlight on the exorbitant valuations clouding the large-cap tech sphere. If prevailing market patterns persist, a scenario might emerge where investors pivot away from mega-cap tech stocks, especially in the face of any minor earnings setbacks or adverse news concerning leading behemoths like Nvidia (NASDAQ:NVDA).
In stark contrast, small-cap tech plays remain an overlooked terrain primed for resurgence. By anchoring your tech ETF selection with SPSM, you strike a balance that avoids excessive exposure while tapping into the potential for substantial gains in the small-cap tech arena.
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Completing the trio is the iShares Global Tech ETF (IXN), a captivating option to explore for investors seeking broader exposure and global tech marvels.
Unveiling the Global Tech Treasure Trove
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A Broadly Global Investment Perspective
iShares Global Tech ETF (NYSEARCA:IXN) offers investors a pathway to seize the flourishing global tech scene, encompassing international companies beyond the realm of U.S. exchanges. With a remarkable 44% return in the past year, IXN has outshone the 31% return of the S&P 500 and matched the 44% bounce of the Nasdaq-100. While U.S. tech stocks often hog the limelight, the gems of international tech often remain overlooked. This factor makes IXN a beacon of geographic diversification, standing tall as a beacon in the tech investment landscape.
Redefining Tech Portfolio Boundaries
Within the top holdings of IXN, investors will discover familiar tech titans such as Nvidia, Microsoft (NASDAQ:MSFT), and Apple (NASDAQ:AAPL). Differentiating itself from conventional domestic tech ETFs, IXN shines brightly in its inclusion of foreign powerhouses like Samsung, Tokyo Electron (OTCMKTS:TOELY), and Ericsson. While some of these entities are accessible on U.S. exchanges in the form of ADRs or F-Shares, with associated expense ratio and liquidity concerns, IXN bypasses these pitfalls with ease.
On the date of publication, Jeremy Flint did not hold any positions (directly or indirectly) in the securities discussed. The opinions presented in this article belong to the writer, complying with the InvestorPlace.com Publishing Guidelines.
