Apple And Microsoft: They Don’t Dominate Every Tech ETF

To see part one of this two-part series where we explained how to find an ETF’s holdings — and used a popular dividend ETF as one example — please see Monday’s Juice. Today, we continue with the theme, but take things a bit further and in a slightly more complicated direction. 

Assume you’re bullish on tech. You own SPY and QQQ. You’re happy being overweight the big tech names. But you want another ETF to add to the mix that really gives you pure-play exposure to a broader array of tech companies that resonate with you. And you want to add much to your exposure of the two stocks that dominate so many ETFs, tech or otherwise, Apple (AAPL) and Microsoft (MSFT). 

In this — and similar cases — you’d be smart to keep your eyes on the Trackstar lists at the top of these emails. We often rank ETFs. And, because they’re the ETFs retail and professional investors are searching for most across our 100+ financial media partners, you’re likely to find an idea or two. And, if you discover the ones on the list aren’t for you, hopefully they help set you on the path to find the ETFs that are for you. 

That’s exactly what we do in today’s little exercise. 

We have covered the most-searched tech ETF — the VanEck Vectors Semiconductor ETF (SMH) — quite a bit in The Juice. So we’ll skip SMH. 

Then you see the Technology Select Sector SPDR Fund (XLK) and you have no idea what it is, other than it’s an ETF that owns technology stocks. Fantastic. But you don’t know enough. You need to know more before you hit the buy button. 

So you follow the steps noted in Monday’s Juice and go to the ETF’s webpage. Right away you see that it’s an index fund seeking results that  “correspond generally to the price and yield performance of the Technology Select Sector Index.” An index that represents the tech sector of the S&P 500. So, a passive ETF, meaning management isn’t stock picking. They simply own the names in the index. 

When you scroll down to see the fund’s actual holdings, you’re not surprised. All the usual tech suspects, led by Apple and Microsoft, who, together, make up a whopping 43.4% of the ETF. If you want to diversify your tech holdings, outside of SPY and QQQ, the XLK ETF might not be the best choice. 

However, how many people do you think buy it without obtaining this basic and easy-to-find information? Too many. 

We’ll skip the semiconductor ETF in third place and go to where things get interesting, starting with #4, the Vanguard Information Technology ETF (VGT). It’s Vanguard, so you know it’s going to have a low expense ratio. And it does, at 0.10%. And you quickly discover that VGT is a passive index fund that tracks an index of IT stocks. You might finally have some diversification alongside your heavy concentration of Apple and company in SPY and QQQ. Or not? 

You gotta go to the holdings. 

When you do that, you see that there are 312 stocks, led by, damn it (!), Apple and Microsoft, who, combined, make up 41.2% of the fund. 

How about #5, the Fidelity MSCI Information Technology Index ETF (FTEC)?

Basically, the same exact thing. 

It’s worth repeating. Don’t think you’re getting diversification simply by purchasing shares in a pure tech ETF. Often, you’re still getting the same names at the top in out-sized concentrations. 

You gotta dig deeper. One way to do it is to go with more specialized products (but not too specialized) that drill down into a subsector of the tech sector. 

We scoured Trackstar for ETFs like this that don’t own Apple. We’ll cover others in future installments of The Juice. Today, we use a solid example to illustrate — the iShares Expanded Tech-Software Sector ETF (IGV), which has generated 2,243 recent searches in Trackstar. 

This ETF, which is up around 48% over the last year, also tracks an index — “an index composed of North American equities in the software industry and select North American equities from interactive home entertainment and interactive media and services industries,” called the S&P North American Expanded Technology Software Index. 

Now, we’re not suggesting you buy IGV (it does have a somewhat high expense ratio of 0.41%). We’re just using it to illustrate the effectiveness of the little research trail we’re creating. 

When you look at its holdings, you see not only different names in the top 10, but a more even concentration. Microsoft is the second biggest holding, at 8.45% behind Salesforce.com (CRM) at 8.90%. The remainder of the top ten includes stocks, such as Adobe (ADBE) and Oracle (ORCL) at 8.00% and 7.37% concentrations, respectively, and Crowdstrike Holdings (CRWD), the tenth largest position, at 2.84%. 

Of course, you have to ask yourself if you want to focus on the software side of tech, but you get the point. Dig into the holdings to find what you’ll own in these ETFs. Once you start searching you’ll come up with a ton of sub-sector ETFs in tech and other spaces. With a little research you can broaden your exposure beyond the household names you might already have significant stakes in. 

In today’s Freshly Squeezed section below, the last link goes to an ETF screener that can help with this process. 

The Bottom Line: We like to write a newsletter you can actually use. If you have questions or there’s an area you’d like to know more about, please use the feedback link at the bottom of this email. 

It’s a huge pitfall. You’re going to own a portfolio of ETFs so you look at their names and buy a few of them, thinking you’re diversified in tech. Yet, Apple and Microsoft make up close to half of what these ETFs own. This isn’t necessarily a bad thing in and of itself, but it’s not good if your goal is to own tech beyond the Magnificent Seven.

• 11 Best Wine Stocks to Buy Now
• How To Research An ETF
• 3 Dividend Stocks Leading the Dow in 2024
• Check Out The Juice’s Favorite ETF Screener