These 3 Tech ETFs Can Beat the S&P 500 This Year
Key Points
The Roundhill Memory ETF offers full exposure to memory chips, which are arguably the most important tech for the AI build-out.
The iShares Semiconductor ETF offers broader exposure to chipmakers and semiconductor equipment companies.
The Vanguard Information Technology Index Fund offers broader diversification across the entire tech sector.
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The tech sector has been one of the most lucrative places for long-term investors to put their money in recent years. The internet, e-commerce, cloud computing, and, more recently, artificial intelligence have been some of the central innovations fueling growth in the sector.
The S&P 500's performance has become heavily tied to tech stocks. The "Magnificent Seven" stocks make up more than one-third of the S&P 500's total value, and that group doesn't even include other trillion-dollar tech companies like Broadcom and Micron.
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However, some investors want even greater exposure to tech than a broad-market fund would offer. For such investors, these three tech-focused exchange-traded funds (ETFs) can get the job done.
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Roundhill Memory ETF
The Roundhill Memory ETF (NYSEMKT: DRAM) puts its focus on memory-chip makers. These companies have benefited massively from the AI build-out, since AI processors and data center servers need copious amounts of memory to function with maximum efficiency.
The ETF has gained more than 100% since its April debut. Samsung, Micron, and SK Hynix -- the world's three largest memory makers -- are its top three holdings, and they account for more than 70% of the fund's total assets. Smaller memory chip makers round out the portfolio's 24 holdings.
While some investors shy away from stocks and ETFs after they have experienced big rallies, that may not be the best choice when it comes to the Roundhill Memory ETF. Well-known tech sector analyst Dan Ives laid out a bullish scenario in a recent CNBC appearance, citing rising memory prices and demand far outstripping supply.
"Memory players, right now it's their world and everyone else is paying rent," Ives said.
The S&P 500 does offer exposure to memory-chip makers, but the Roundhill Memory ETF holds only those chipmakers. The fund has a lofty 0.65% expense ratio and a 1.10% SEC yield.
iShares Semiconductor ETF
The iShares Semiconductor ETF (NASDAQ: SOXX) offers broader exposure to chipmakers such as Nvidia, Advanced Micro Devices, and Broadcom, as well as memory players and others.
This tech ETF has more than 30 holdings, with its top 10 holdings making up more than 60% of assets. That portfolio has produced an annualized 29.6% return over the past five years, and the continued AI build-out looks likely to be an excellent tailwind for its continued outperformance.
Semiconductors are the backbone of the AI boom. Hyperscalers must accumulate chips from Nvidia, Broadcom, and other companies to meet the world's demand for computing power. That makes it easier for these companies to deliver high revenue growth rates.
While chipmakers are the main focus of this fund, more than 20% of its capital is allocated toward foundries and semiconductor equipment companies. Applied Materials, Taiwan Semiconductor Manufacturing, and Lam Research show up among the fund's top 10 positions. It has a 0.33% expense ratio and a 0.29% yield.
Vanguard Information Technology Index Fund
The Vanguard Information Technology Index Fund (NYSEMKT: VGT) isn't limited to the chip space. Although some of the top AI stocks mentioned above show up in its portfolio, different names also appear in the top 10, including Apple, Microsoft, and Cisco.
It's the most diversified tech ETF of the bunch, with more than 300 holdings. Its top 10 picks account for a little more than 60% of its total assets, with the top three -- Nvidia, Apple, and Microsoft -- contributing more than 40% of the portfolio's value.
One of the biggest strengths of Vanguard ETFs is their low expense ratios, and this fund doesn't disappoint. Its minuscule 0.09% expense ratio is wiped away by its 0.35% SEC yield. Its annualized 24.3% return over the past decade shows that long-term investors have been making out well with this ETF.
While the other two ETFs focus on chipmakers, the Vanguard Information Technology Index Fund offers exposure to other key tech themes, such as social media, smartphones, cybersecurity, and software.
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Marc Guberti has positions in Apple and Broadcom. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Applied Materials, Broadcom, Cisco Systems, Lam Research, Micron Technology, Microsoft, Nvidia, Taiwan Semiconductor Manufacturing, and iShares Trust-iShares Semiconductor ETF. The Motley Fool has a disclosure policy.
