If you’re nervous about the Magnificent 7’s prospects as part of your tech stock portfolio, you aren’t alone. Even as inflation abates and rate cuts loom on the horizon, inflated valuation and the fact that a handful of tech stocks carry major market benchmarks is concerning.
But that isn’t to dissuade investors from seeking tech stock opportunities — just the opposite. “Tech,” as a wide sector, is one of the few segments with near-unlimited long-term growth potential as innovation and adaptation are parts of the industry itself, unlike utilities.
But putting your nest egg into a basket of a handful of top tech stocks isn’t just risky — it’s a recipe for disaster. Instead, look to these tech ETFs as viable additions to a well-rounded portfolio that offers exposure and upside alongside diversification that reduces your overall risk.
iShares U.S. Medical Devices ETF (IHI)
Expense ratio: 0.40%, or $40 annually on a $10,000 investment
Choosing healthcare tech ETFs for long-term investment, like the iShares U.S. Medical Devices ETF (NYSEARCA:IHI), is one of the easiest ways to snag upside available in both tech and healthcare sectors — two of the top growth sectors for the foreseeable future. Analysts consider healthcare a leading investment theme for 2024, and IHI offers an optimal mix of established giants and emerging tech innovators. That combination positions IHI as a prime vehicle to leverage the dynamic potential of breakthrough HealthTech stocks while enjoying the stability provided by larger firms.
The rapid advancements in artificial intelligence, automation and other healthcare innovations make selecting individual stocks with long-term growth prospects challenging, especially for those not deeply versed in the healthcare industry. It’s difficult to distinguish between a potentially misleading company like Theranos and a successful innovator like Intuitive Surgical (NASDAQ:ISRG). That complexity underscores why tech ETFs are often the preferred strategy for navigating specialized sectors like healthcare for many retail investors. IHI stands out as a top choice in this category.
SPDR Portfolio S&P 600 Small Cap ETF (SPSM)
Expense ratio: 0.03%, or $3 annually on a $10,000 investment
Though not a “pure tech” ETF, the SPDR Portfolio S&P 600 Small Cap ETF (NYSEARCA:SPSM) has a substantial chunk of its overall holdings dedicated to solid small-cap tech stocks with companies like Fabrinet (NYSE:FN) and SPS Commerce (NASDAQ:SPSC) among its top holdings. Better yet, buying this small-cap ETF for its tech exposure is a way to offset risk in large- and mega-cap tech stocks making up the S&P 500 and Nasdaq-100.
The Nasdaq-100’s price-to-earnings ratio currently stands at 28. In contrast, SPSM boasts an average P/E ratio of about 14, illustrating overblown large-cap tech valuations at play. Should market trends persist, we may see investors beginning to withdraw from mega-cap tech stocks, especially if there’s even moderate earnings fallout or negative news for top runners like Nvidia (NASDAQ:NVDA).
In contrast, small-cap tech stocks remain overlooked and ready to rebound. Using SPSM to anchor a tech ETF selection helps diversify enough to avoid significant over-exposure while still capturing plenty of small-cap tech upside.
iShares Global Tech ETF (IXN)
Expense ratio: 0.41%, or $41 annually on a $10,000 investment
Though all eyes tend to remain on U.S. tech stocks, tech ETF iShares Global Tech ETF (NYSEARCA:IXN) helps investors capture global tech upside by offering access to international companies unlisted on U.S. exchanges. IXN returned 44% over the past year, outperforming both the S&P 500’s 31% return and the Nasdaq-100’s 44% bounce. Despite their strength, international tech stocks tend to go overlooked — making IXN a perfect geographic diversification tool.
You’ll find the standard tech fare among IXN’s top holdings, including Nvidia, Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL). However, IXN’s strength, setting it apart from standard domestic tech ETFs, is its inclusion of foreign-owned companies like Samsung, Tokyo Electron (OTCMKTS:TOELY) and Ericsson. While some are tradable on U.S. exchanges, they’re usually in the form of either ADRs or F-Shares, both of which have expense ratio and liquidity concerns that IXN avoids.
On the date of publication, Jeremy Flint held no positions (directly or indirectly) in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
