Is Your Tech ETF Exposure Just Megacaps? Try This

Investors love their tech stocks, and for good reason: In 2024 the so-called Magnificent Seven stocks drove outsized performance for countless investors. Big names like Google (GOOG) and Microsoft (MSFT) continue to play market leading roles. They also, of course, fall into the tech stock category. While they still innovate, however, a simple allocation to a market cap-weighted index or growth fund with those megacaps may not offer true tech ETF exposure. 

See more: Why a Bottom-Up Active Approach Matters in International Equities

Instead, it may be worth looking to an ETF that really dives deep and embraces true innovation via the tech ETF wrapper. The T. Rowe Price Technology ETF (TTEQ) charges a 63 basis point fee to offer deep focus on innovation in technology. The fund, managed by T. Rowe Price portfolio manager Dom Rizzo, will also celebrate its one-year anniversary in a few weeks.

Specifically, then, how does the tech ETF invest? TTEQ actively invests in long-term capital growth via global large cap growth firms. Not only does the active tech ETF look to firms innovating, but it also invests in companies that will get the most out of big innovations. 

The strategy leans on T. Rowe Price’s fundamental research capabilities, measuring stocks via factors like stock valuation firms’ business prospects, and potential share price appreciation. The fund does retain the flexibility to also invest in small, emerging tech names, including those that have recently IPO’d.

As expected with any technology-focused ETF, TTEQ does have exposure to the largest leading tech companies. However, unlike passive index-based strategies, this active ETF has the ability to be discerning about which ones and how much to hold. So, while TTEQ has exposure to megacap tech, it also has other companies driving innovation. Nintendo (NTDOF), for example, regularly leads in gaming hardware and software innovation. The company has returned an eye-watering 62.5% YTD, according to YCharts data. 

Together, that has helped TTEQ return 16.7% over the last three months, per ETF Database data. For those looking to refresh their equities, specifically in tech, the active tech ETF may be worth considering.

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