With 2022 marked by rising interest rates and persistently high inflation, the market climate has undergone a seismic shift. Many sectors have found themselves caught in unpredictable currents, but none more so than the technology sector.
Once the darling of investors and speculators alike, tech stocks have seen a significant downturn recently, leading to an increasingly prevalent question: is it the right time to invest in these seemingly undervalued assets?
On one hand, you have the Nasdaq 100 index rallying around 26% year to date. On the other hand, the index’s current level of 13,751 still sits far below its November 2021 peak of 16,573.
Here’s my take: it’s easier to buy the broad tech sector than sift through individual tech stocks trying to find the best bargain. This approach is far more diversified. Here’s a look at two exchange-traded funds, or ETFs that hold tech stocks.
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The U.S. option
Canadian investors looking to index large-cap U.S. tech stocks cheaply can buy BMO NASDAQ 100 Equity Hedged to CAD Index ETF (TSX: ZQQ). As its name suggests, this ETF tracks the popular Nasdaq 100 index.
ZQQ isn’t a pure-play tech ETF. Technically, the Nasdaq 100 index simply tracks the largest 100 non-financial sector companies traded on the Nasdaq. In practice, though, this ETF is heavily dominated by U.S. tech stocks at around 49%,
Notable top holdings currently include Microsoft, Apple, Amazon, Nvidia, Alphabet, Meta, and Tesla. Buying ZQQ will cost you a management expense ratio of 0.39%, which is the annual fee deducted from your investment.
The Canadian option
What about the Canadian tech sector? The TSX has some great picks as well, such as Shopify and Constellation Software. A good pick to consider here is iShares S&P/TSX Capped Information Technology Index ETF (TSX:XIT).
Currently, XIT holds 24 Canadian tech stocks, of which Shopify and Constellation Software comprise 24% of each. If you’re looking for exposure to these two along with others like Open Text, Nuvei, and Lightspeed Commerce, XIT is ideal.
In terms of fees, XIT is significantly more expensive than ZQQ is with a management expense ratio of 0.61%. For a $10,000 investment, this works out to around $61 in annual fees deducted.
The Foolish takeaway
ZQQ and XIT are both highly transparent and liquid ways to quickly index a portfolio of leading U.S. or Canadian tech stocks. However, keep in mind that the tech sector is just one of 11 total market sectors. For greater diversification and income potential, consider augmenting these high-growth stocks with additional Canadian dividend stock picks (and the Fool has some great suggestions below!)
