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Technology has turned out to be the most profitable sector in 2023, driven by the artificial intelligence (AI) boom, easing inflation, a surge in “Magnificent Seven” stocks and a crypto rally. Additionally, bets that the Fed’s aggressive interest rate hiking campaign might be nearing an end powered the rally in the sector in recent weeks.
Together, the seven stocks — Apple (AAPL - Free Report) , Microsoft (MSFT - Free Report) , Alphabet (GOOG - Free Report) , Amazon (AMZN - Free Report) , Nvidia (NVDA - Free Report) , Tesla (TSLA - Free Report) and Meta Platforms (META) — are up around 70% this year. Meanwhile, bitcoin, the world's largest cryptocurrency, soared more than 150% this year and surged past the $42,000 mark for the first time since April 2022 before retreating to near 40,000 levels. The massive rally came on the back of broad Enthusiasm about U.S. interest rate cuts and the imminent regulatory approval for Bitcoin ETFs (read: Bitcoin Reaches $42,000: 5 ETFs More Than Double in 2023).
Given the broad-based rally across sectors, we have highlighted five best-performing ETFs from different industries that have made technology the best performer. These are VanEck Vectors Digital Transformation ETF (DAPP - Free Report) , Valkyrie Bitcoin Miners ETF (WGMI - Free Report) , ARK Next Generation Internet ETF (ARKW), VanEck Vectors Semiconductor ETF (SMH - Free Report) and SPDR NYSE Technology ETF (XNTK - Free Report) .
More Rally Ahead?
Finally, the Fed, in the latest FOMC meeting, hinted at three rate cuts for the next year while keeping the rates steady for this year. The central bank will cut rates by 75 bps next year, up from the previous forecast of two rate cuts in 2024. Markets are now pricing in a nearly 60% chance that the Fed will begin to cut rates in its March meeting, up from 40% the day prior, per data from the CME Group.
As the tech sector relies on borrowing for superior growth, it is cheaper to borrow more money for initiatives when interest rates are low. The reductions in interest rates, coupled with the ongoing rise of AI, will act as a major tailwind for the next year. Higher spending across the software, semiconductors, and digital media consumer sectors will provide a further boost to the sector.
The expansion of AI applications holds the promise of ushering in fresh opportunities for growth within the sector. The global digital shift has accelerated e-commerce for everything, ranging from remote working to entertainment and shopping, thereby bolstering strength in the sector. The rapid adoption of cloud computing, big data, the Internet of Things, wearables, VR headsets, drones, virtual reality, machine learning, digital communication, blockchain and 5G technology will continue to fuel a rally.
Further, the tech titans have strong balance sheets, durable revenue streams and robust profit margins, making them attractive investments. They are better positioned to withstand a possible economic downturn and have demonstrated improved cost discipline.
VanEck Vectors Digital Transformation ETF (DAPP - Free Report) – Up 191.8%
VanEck Vectors Digital Transformation ETF aims to offer exposure to companies that are at the forefront of digital asset transformation, such as digital asset exchanges, payment gateways, digital asset mining operations, software services, equipment and technology or services to the digital asset operations, digital asset infrastructure businesses or companies facilitating commerce with the use of digital assets. VanEck Vectors Digital Transformation ETF tracks the MVIS Global Digital Assets Equity Index and holds 22 securities in its basket. It charges 50 bps in annual fees and has accumulated $64.3 million in its asset base.
Valkyrie Bitcoin Miners ETF is an actively managed ETF that invests at least 80% of its net assets (plus borrowings for investment purposes) in securities of companies that derive at least 50% of their revenues or profits from bitcoin mining operations and from providing specialized chips, hardware and software or other services to companies engaged in bitcoin mining. Valkyrie Bitcoin Miners ETF holds 22 stocks in its basket, with a double-digit concentration on the top four firms. It has amassed $33 million in its asset base and charges 75 bps in annual fees.
ARK Next Generation Internet ETF (ARKW) – Up 84.5%
ARK Next Generation Internet ETF is an actively managed fund focusing on companies expected to benefit from the shift in technology infrastructure to the cloud, enabling mobile, new and local services. The fund holds 35 stocks in its basket. ARK Next Generation Internet ETF has amassed $1.6 billion in its asset base and charges 88 bps in annual fees (read: 5 Tech ETFs That Outperformed XLK in the Past Week).
VanEck Vectors Semiconductor ETF offers exposure to the companies involved in semiconductor production and equipment. SMH follows the MVIS US Listed Semiconductor 25 Index, which measures the overall performance of companies involved in semiconductor production and equipment. VanEck Vectors Semiconductor ETF holds 26 stocks in its basket. SMH has managed assets worth $10.9 billion and charges 35 bps in annual fees and expenses. It has a Zacks ETF Rank #1 (Strong Buy) with a High risk outlook (read: Semiconductors Lead Decade's Top Gainers: 3 ETFs Up At Least 550%).
SPDR NYSE Technology ETF provides exposure to 35 leading U.S.-listed technology-related companies by tracking the NYSE Technology Index. Semiconductors take the largest share at 26%, while systems software, application software, application Software and broadline retail round off the next four spots. SPDR NYSE Technology ETF has amassed $625.1 million and charges 35 bps in annual fees.
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5 Best-Performing Technology ETFs of 2023
Technology has turned out to be the most profitable sector in 2023, driven by the artificial intelligence (AI) boom, easing inflation, a surge in “Magnificent Seven” stocks and a crypto rally. Additionally, bets that the Fed’s aggressive interest rate hiking campaign might be nearing an end powered the rally in the sector in recent weeks.
Together, the seven stocks — Apple (AAPL - Free Report) , Microsoft (MSFT - Free Report) , Alphabet (GOOG - Free Report) , Amazon (AMZN - Free Report) , Nvidia (NVDA - Free Report) , Tesla (TSLA - Free Report) and Meta Platforms (META) — are up around 70% this year. Meanwhile, bitcoin, the world's largest cryptocurrency, soared more than 150% this year and surged past the $42,000 mark for the first time since April 2022 before retreating to near 40,000 levels. The massive rally came on the back of broad Enthusiasm about U.S. interest rate cuts and the imminent regulatory approval for Bitcoin ETFs (read: Bitcoin Reaches $42,000: 5 ETFs More Than Double in 2023).
Given the broad-based rally across sectors, we have highlighted five best-performing ETFs from different industries that have made technology the best performer. These are VanEck Vectors Digital Transformation ETF (DAPP - Free Report) , Valkyrie Bitcoin Miners ETF (WGMI - Free Report) , ARK Next Generation Internet ETF (ARKW), VanEck Vectors Semiconductor ETF (SMH - Free Report) and SPDR NYSE Technology ETF (XNTK - Free Report) .
More Rally Ahead?
Finally, the Fed, in the latest FOMC meeting, hinted at three rate cuts for the next year while keeping the rates steady for this year. The central bank will cut rates by 75 bps next year, up from the previous forecast of two rate cuts in 2024. Markets are now pricing in a nearly 60% chance that the Fed will begin to cut rates in its March meeting, up from 40% the day prior, per data from the CME Group.
As the tech sector relies on borrowing for superior growth, it is cheaper to borrow more money for initiatives when interest rates are low. The reductions in interest rates, coupled with the ongoing rise of AI, will act as a major tailwind for the next year. Higher spending across the software, semiconductors, and digital media consumer sectors will provide a further boost to the sector.
The expansion of AI applications holds the promise of ushering in fresh opportunities for growth within the sector. The global digital shift has accelerated e-commerce for everything, ranging from remote working to entertainment and shopping, thereby bolstering strength in the sector. The rapid adoption of cloud computing, big data, the Internet of Things, wearables, VR headsets, drones, virtual reality, machine learning, digital communication, blockchain and 5G technology will continue to fuel a rally.
Further, the tech titans have strong balance sheets, durable revenue streams and robust profit margins, making them attractive investments. They are better positioned to withstand a possible economic downturn and have demonstrated improved cost discipline.
VanEck Vectors Digital Transformation ETF (DAPP - Free Report) – Up 191.8%
VanEck Vectors Digital Transformation ETF aims to offer exposure to companies that are at the forefront of digital asset transformation, such as digital asset exchanges, payment gateways, digital asset mining operations, software services, equipment and technology or services to the digital asset operations, digital asset infrastructure businesses or companies facilitating commerce with the use of digital assets. VanEck Vectors Digital Transformation ETF tracks the MVIS Global Digital Assets Equity Index and holds 22 securities in its basket. It charges 50 bps in annual fees and has accumulated $64.3 million in its asset base.
Valkyrie Bitcoin Miners ETF (WGMI - Free Report) – Up 190.8%
Valkyrie Bitcoin Miners ETF is an actively managed ETF that invests at least 80% of its net assets (plus borrowings for investment purposes) in securities of companies that derive at least 50% of their revenues or profits from bitcoin mining operations and from providing specialized chips, hardware and software or other services to companies engaged in bitcoin mining. Valkyrie Bitcoin Miners ETF holds 22 stocks in its basket, with a double-digit concentration on the top four firms. It has amassed $33 million in its asset base and charges 75 bps in annual fees.
ARK Next Generation Internet ETF (ARKW) – Up 84.5%
ARK Next Generation Internet ETF is an actively managed fund focusing on companies expected to benefit from the shift in technology infrastructure to the cloud, enabling mobile, new and local services. The fund holds 35 stocks in its basket. ARK Next Generation Internet ETF has amassed $1.6 billion in its asset base and charges 88 bps in annual fees (read: 5 Tech ETFs That Outperformed XLK in the Past Week).
VanEck Vectors Semiconductor ETF (SMH - Free Report) – Up 65.7%
VanEck Vectors Semiconductor ETF offers exposure to the companies involved in semiconductor production and equipment. SMH follows the MVIS US Listed Semiconductor 25 Index, which measures the overall performance of companies involved in semiconductor production and equipment. VanEck Vectors Semiconductor ETF holds 26 stocks in its basket. SMH has managed assets worth $10.9 billion and charges 35 bps in annual fees and expenses. It has a Zacks ETF Rank #1 (Strong Buy) with a High risk outlook (read: Semiconductors Lead Decade's Top Gainers: 3 ETFs Up At Least 550%).
SPDR NYSE Technology ETF (XNTK - Free Report) – Up 64.8%
SPDR NYSE Technology ETF provides exposure to 35 leading U.S.-listed technology-related companies by tracking the NYSE Technology Index. Semiconductors take the largest share at 26%, while systems software, application software, application Software and broadline retail round off the next four spots. SPDR NYSE Technology ETF has amassed $625.1 million and charges 35 bps in annual fees.