Two of the best technology-focused ETFs

Key points:

  • The Invesco QQQ ETF has generated an average annual return of 21% over the past decade;
  • ETF Fidelity MSCI IT Index has an average annual return of 23% since its inception in 2013;
  • Both funds have technology oriented portfolios, but they have significant differences.

The tech sector can certainly be called one of the most impressive in the stock market over the past 10 years. In fact, it was he who provided the driving force for the longest bull market in history. It’s impossible to predict how things will play out over the next 10 years, but experts expect tech companies to continue to thrive, transforming other industries from finance to healthcare and blazing new trails with artificial intelligence, robotics, and more.

A great way to capitalize on technological progress, without betting on any specific companies (after all, it is rather difficult to predict in advance which of them will end up “on the top”) is to buy technology-oriented exchange-traded funds (ETF) shares. They will simultaneously provide investors with both access to companies with great potential and diversification to reduce risks.

Some of the best technology-focused funds currently available are the Invesco QQQ ETF (NASDAQ: QQQ) and the Fidelity MSCI Information Technology Index ETF (NYSEMKT: FTEC). We will compare them today.

Invesco QQQ: The most popular fund in the world

Invesco QQQ is one of the most popular ETFs in the world. It has assets under its management amounting to about 180 billion dollars. The fund monitors the Nasdaq 100 Index, which consists of the 100 largest non-financial companies (mostly in the tech sector) listed on the NASDAQ. As of June 30, 2021, the ETF had about 49% of its assets in technology stocks.

Pie Chart: Asset Diversification of QQQ Invesco Fund
Diversification of fund assets by industry

Its three largest holdings were Apple (10.99%), Microsoft (9.81%) and Amazon (8.34%).

Top 10 holdings included in the QQQ Invesco ETF portfolio
10 largest holdings included in the fund

The performance of this fund has been fantastic over the years. In the second quarter of 2021, QQQ Invesco grew by 44% over the previous 12 months. The average annual return over the past five years was 28%, and over the past 10 years – 21%. Since the beginning of this year, the ETF has already grown by about 14% (as of 20.07.21).

Investment growth chart in Invesco QQQ
How much would $ 10,000 invested in Invesco QQQ have grown 10 years ago (compared to the Nasdaq 100 and S & P500 indices)

Its commission is 0.20%, which is below the market average. The standard deviation of the return on the fund’s portfolio is 27.7%.

Fidelity MSCI ETF: Investment in the Information Technology Index

The Fidelity MSCI Information Technology Index ETF tracks the MSCI USA IMI Information Technology Index, which includes approximately 350 IT stocks (includes large, mid and small caps). The fund invests in a representative sample of securities with an investment profile similar to the index.

The selection of securities is based on several criteria, including market capitalization and industry weights, fundamental characteristics and liquidity ratios. Thus, he invests at least 80% of his assets in stocks included in the index. Its three largest holdings are Apple, Microsoft and Nvidia.

TOP-10 holdings in ETF Fidelity MSCI
TOP-10 holdings in the fund

Founded in 2013, this fund does not yet have a 10-year track record to compare with QQQ, but it has performed extremely well throughout its history. Over the past five years, its average annual return was 30.8%. And since its inception in 2013, it has had an average annualized return of 23.7%. Since the beginning of this year, it has already grown by 14% (as of July 20, 2021). It has low commissions of 0.08%, well below the industry average. The standard deviation of the fund’s return is 9.58%.

Investment Growth Chart and Major ETF Fidelity Multipliers
How much would $ 10,000 invested have grown since the foundation of the fund in 2013?

Which fund should you choose?

While the two foundations discussed above are technology oriented, there are some significant differences between the two. The Fidelity ETF is purely a technology fund, while Invesco QQQ, while focused primarily on technology stocks, is diversified into other sectors as well. But ETF Fidelity is more diversified in the IT sector and has three times more holdings than Invesco QQQ.

Both are great ETFs, but if I had to pick one, I would go for the Fidelity ETF. It has significantly outperformed Invesco’s QQQ over the past five years and has enjoyed excellent returns since its inception. It also has significantly lower commissions and more consistent returns (standard deviation 9.58% versus 27.7% for Invesco QQQ).

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