Passive investors seeking a high-tech growth edge should take their time to consider their options. Still, just how many of them can help investors outpace the S&P 500 as the AI revolution (and early innings of the quantum computing uprising) continues to unfold?
Of course, the Nasdaq 100 is a popular go-to index option for investors who are fans of the mega-cap tech darlings and the lowest fees possible. However, given the top-heaviness of the index and the fact that it’s not exactly a sector, it’s no surprise that some growth investors are more willing to consider what else is out there. Indeed, there’s no harm in knowing what’s out there.
In this piece, we’ll look at two popular ways for ETF investors to get their high-tech exposure. The Technology Sector SPDR Fund (
Let’s dig into the two high-tech ETFs so that young, growth-minded investors can make a more informed decision about which fund is a better fit.
Key Points
-
The XLK and ARKK are great alternatives to the Nasdaq 100 for investors seeking more growth than the S&P.
-
The XLK is a fantastic ETF that’s a bit too heavily concentrated in the top three tech titans that I’d like.
-
Cathie Wood’s funds are roaring back. And the boom probably isn’t over yet.
-
Are you ahead, or behind on retirement? SmartAsset’s free tool can match you with a financial advisor in minutes to help you answer that today. Each advisor has been carefully vetted, and must act in your best interests. Don’t waste another minute; get started by clicking here.(Sponsor)
Technology Sector SPDR Fund
The Nasdaq 100 is a great growth index to pick up on the cheap, provided you’re fine with the fact that it’s not exclusive to the tech sector. How could it be with names like Lululemon (NASDAQ:LULU) in it?
If you want a fund that’s all-in on tech and one that doesn’t cut out names that aren’t Nasdaq-listed, the XLK could be a wiser way to go if you’re all about passive management and minimizing expense ratios.
The XLK is a great way to gauge the tech sector, but its concentration in the mega-caps is quite striking, as I’ve often remarked in prior pieces covering the XLK. Specifically, Nvidia (NASDAQ:NVDA), Microsoft (NASDAQ:MSFT), and Apple (NASDAQ:AAPL) boast double-digit percentage weightings in the fund. Although they change over time, investors can expect the weightings of the top three tech titans to represent approximately 40% of the index at any given time. It’s top-heavy, to say the least, more so than the Nasdaq 100 or S&P.
Can’t get enough of these big three titans? The XLK may be right for you. It is very cost-effective with a 0.08% gross expense ratio. However, if you’re looking for exposure to the tech up-and-comers, perhaps it’s best to look elsewhere.
Ark Innovation ETF
If you want active management and exposure to the market’s less-obvious rising stars in tech, the Ark Innovation ETF could be the better way to go, especially as the ARKK takes things into overdrive going into August.
Indeed, everyone knows about the Mag Seven by now. They’ve gotten much of the media attention, and you’re probably already heavily exposed to the names. Sure, some may find it more comforting to invest in larger market-cap firms, but I think that smaller firms not at the top of the market could offer more in the way of growth.
Cathie Wood is a popular disruptive innovation investor whose funds can really take off when tech is on top of the world. At the same time, when the tides turn, the ARKK could really stand to take a beating, as we found out in 2021 and 2022. With a 2.07 beta, which is higher than the 1.26 of the XLK and 1.14 of the Nasdaq 100, investors should expect a choppier ride with the ARKK. As much as I like Cathie Wood, I think the ARKK is too choppy to own on its own.
The hyper-growth names owned by ARKK tend to be hyper-volatile. And diversification into lower-beta blue chips, I think, is a great way to soften the choppiness of such a fund, should you choose to jump aboard as the tech boom looks to make Cathie Wood a household name again. For young investors who aren’t strangers to volatility (look no further than ARKK’s 2021-22 plunge), I do think the ARKK has a better shot of outperforming the XLK over the next year.
Though I would ensure one isn’t all-in on ARKK or the tech sector! In short, I think Wood’s active approach is worth paying up for, especially for young investors who want to capitalize on “the next big thing” rather than settling for the market’s current slate of leaders.
I guess it comes down to whether you want to have more than 40% invested in NVDA, MSFT, and AAPL with the remaining 60% spread across other well-known tech blue chips, or if you’d rather spread your bets more evenly across emerging, disruptive names that could rise up and become a future household name.
The post XLK vs. ARKK: Which Tech ETF Should Young Investors Buy for Growth? appeared first on 24/7 Wall St..
