1.Tech ETFs: what you need to know
Tech exchange traded funds (ETFs) track the price of a group of tech stocks, or the performance of the tech sector as a whole. Many investors want to invest in tech due to the roster of companies that operate in this sector, including Apple (AAPL), Microsoft (MSFT), Amazon (AMZN) and Alphabet (GOOGL).
A tech ETF is a way for you to get exposure to multiple companies at once. This means you won’t need to hold AAPL, MSFT, AMZN and GOOGL stock directly, and you won’t need to pay to invest in each of these companies separately.
Tech and information technology is one of the most popular sectors to invest in, and it had a number of the best performing stocks in countries across the globe for the first half (H1) of 2020.
| Location | Index | Company | Share price return | Sector | |
| 1 | UK | FTSE All Share | BATM Advanced Communications | +266.9% | Information technology |
| 2 | Japan | Topix | GMO CLOUD K.K. | +176.5 | Information technology |
| 3 | Australia | ASX 200 | Afterpay | +130.1 % | Information technology |
| 4 | US | S&P 500 | DexCom Inc | +94.0% | Health care |
| 5 | Spain | IBEX 35 | Cellnex Telecom | +48.4% | Communication services |
| 6 | Singapore | Straits Times Index (STI) | Mapletree Logistics Trust | +19.5% | Real estate |
| 7 | France | CAC 40 | Worldline | +17.2% | Information technology |
2.What are the different types of tech ETF?
There are many different types of tech ETF to take a position on, and the one you choose will depend on how you want to get exposure to the tech sector. In general, there are large cap tech ETFs, small cap tech ETFs and inverse or short tech ETFs. Let’s go through each of these in turn.
Large cap tech ETFs
Large cap tech ETFs are those with more assets under management – or total assets. Some funds have trillions of dollars in assets, others have less. The size of a fund is not essential to success, which is something that you should bear in mind before taking a position on tech ETFs.
An example of a large cap tech ETF is the iShares S&P 500 IT Sector, which has over £2 billion in total assets.
Small cap tech ETFs
Small cap tech ETFs will have fewer assets under management than large caps, but that isn’t necessarily a gauge of whether they will have a successful performance.
For example, the Han-Gins Tech Megatrend EQL has £24 million in total assets, but it achieved a total return of 37.8% year-to-date (YTD) at the time of writing (11 November 2020). In contrast, the iShares S&P 500 IT Sector fund mentioned in the previous section achieved a total return YTD of 31.2%.
Inverse or short tech ETFs
Inverse or short tech ETFs will increase in value if the underlying market falls. So, they are used by traders and investors with a negative outlook for the tech sector. You’d ‘buy’ an inverse tech ETF if you expected the tech sector to drop.
3.How to trade tech ETFs
- Create an account with us or log in
- Research the tech sector
- Decide on how you want to take a position
- Take steps to manage your risk
- Open and monitor your position
Before you trade tech ETFs, it’s important that you follow step three above and decide exactly how you want to take a position. Generally speaking there are two ways – trading or investing.
Trading will entail taking a position on an ETF with derivatives such as spread bets and CFDs. These enable you to trade on the rising value of the ETF by going long, as well as its falling value by going short. You won’t be buying shares in the ETF directly, but you will be able to take a position with leverage.
This’ll let you open a position with an initial deposit known as margin while granting you full market exposure. But, keep in mind that leverage can increase your losses, as well as your gains.
Investing enables you to directly buy shares in an ETF – meaning that you’ll profit if it rises in value. Alternatively, you could invest in an inverse ETF, which will let you profit from falling markets. You won’t be able to use leverage when investing, meaning you’ll have to commit the full value of your position upfront. But, you will be eligible for dividends if they are paid.