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Tech ETF exposure

85K views 89 replies 22 participants last post by  scorpion_ca 
#1 ·
I'm currently invested in ZQQ which is the BMO NASDAQ 100 hedged ETF.

Is this the best ETF at the moment for exposure to the tech industry. I dont want to invest in individual tech stock but want some dispersed exposure.
 
#10 ·
I wanted to point out performance since Belguy posted this on 2012-08-11. In fact, the Canadian tech sector has been outperforming. In the approx 7 years, annualized performance is

XIT 24.7% per year
ZQQ 17.4% per year

Canadian tech sector wins, even beating NASDAQ (hedged) performance. Who would have predicted this? Not me! XIT had been a useless fund for a very long time.

There's just about no way to predict when a sector will turn hot. Unfortunately, most of us have been underweight tech during this enormous rally.
 
#5 · (Edited)
I'm not endorsing a sector-specific bet, but just observing: Canadian tech (XIT) has been performing spectacularly well:
http://performance.morningstar.com/funds/etf/total-returns.action?t=XIT&region=CAN&culture=en_US

5 year return: 21% annualized
10 year return: 10%
15 year return: 11%

Beware however that most of that outperformance has only happened in the last few years, so it has not consistently performed this well. It was a poorly performing sector for a long time.

This leads to another, bigger question for those of us designing our own portfolios. How do we know whether a TSX sector is a flash in the pan, or something worth investing in? In my own Five Pack, and all the various other X-packs around here, we choose which sectors we want. Most of us exclude tech. But what if Canada's economy turns into a tech-based one, and these stocks become a big part of future TSX performance?

I'm sure investors were asking themselves the same question in the 1990s. The investors who continued excluding tech from their portfolios benefited when tech turned out to be a dud. But what happens if technology really does start becoming a significant part of the TSX performance going forward?

I think it could happen. The Kitchener-Waterloo-Cambridge region and Ottawa are both very tech-heavy, and there is talk of expanding BC's tech sector as well.
 
#6 ·
ZQQ is good but there is some issue though w its high concentration in the FAANG stocks. They make up ~45% of the index now. There are a few other funds that are a little more diversified and even weighted that were also recommended by some investment and ETF analysts who write for the Gobe or on BNN. FHQ First Trust Alphadex US Tech Sector based on a multifactor approach 79 stocks , or TXF First Asset Tech Giants covered call ( has 12 % in the FAANGS) ~ 54 holdings.

Or a US fund SMH VanEck Vectors Semiconductors Index

Some more ideas.

https://www.theglobeandmail.com/glo...h-tech-with-these-niche-etfs/article37946168/
 
#8 ·
I'm sure it is quite good too. I was just noting how much the US Nasdaq ETFs have become about a small group of stocks. I'm sure XIT is more diversified too. I may look at some tech sector ETFS - I think it is reasonably maybe a little over valued but not as bad as the S&P.

Have tech in some general funds like DQD and XMS.
 
#12 ·
What the heck is going on with the Canadian tech sector recently? Here's a chart of XIT in lime green against the US benchmark QQQ, in black. They track each other pretty closely until the start of this year, and then XIT starts going absolutely nuts.

I hold a couple of the major holdings (Constellation & CGI Group) in my high risk growth portfolio, but generally have little exposure otherwise.

Link to chart, and attached the image.

Text Green Line Font Plot
 
#16 ·
What the heck is going on with the Canadian tech sector recently? Here's a chart of XIT in lime green against the US benchmark QQQ, in black. They track each other pretty closely until the start of this year, and then XIT starts going absolutely nuts.

I hold a couple of the major holdings (Constellation & CGI Group) in my high risk growth portfolio, but generally have little exposure otherwise.

Link to chart, and attached the image.

View attachment 19536


hmmmn i'm intrigued but have no explanation. Jas4 since you are the party who authored the chart, perhaps you could take ownership of the question why canadian tech suddenly took off & get back to us?

looks like everybody is dissing QQQ these days. I've posted about the big green's new global tech ETF. Here in this video the TD manager describes why the Nasdaq index is too generalized & old-fashioned to truly be considered tech today. It even contains Pepsi, for crying out loud.

https://www.moneytalkgo.com/video/td-launches-td-global-technology-leaders-index-etf/
 
#17 ·
I think that's what's going on. The outlandishly high return of SHOP (a big weight in XIT) seems to be driving the whole move.

As for tech exposure, there's already plenty of it in the S&P 500. I have no intention to add more tech myself, especially since it correlates very strongly with my employment.
 
#18 · (Edited)
To me the Nasdaq was getting too weighted to the FANG stocks and isn't just technology.

One pure technology ETF I like is the First Trust Alphadex Tech Sector FHQ.F ( hedged) which has far better performance over the past 3 yrs - up 123% vs 65% for ZQQ. This is a well designed, diversified, broad based ETF using a methodology to factor and rank 100 stocks from the Russell 1000 and weight them based on their factor value scores. Has a nice mix of SW , HW, services, electronics, peripherals etc . Had a nice run and might be a little pricey now though.

https://web.tmxmoney.com/charting.php?qm_page=66338&qm_symbol=FHQ

https://www.firsttrust.ca/Retail/Etf/EtfSummary.aspx?Ticker=FHQ
 
#20 ·
Lots of big gains.
I was going to sell off some AMBA last week, glad I didn't.

Having seen what shopify offers customers I really should have considered it.
They could have competition from others, but they seem to have really figured out how to make it easy.
It's pretty much the default choice, in a growing market.
 
#21 ·
Tech hitting new highs, with XIT now at a new all time high. Its American cousin, QQQ, is just a few % from a new all time high.

And contrary to popular belief, this is not just a Shopify thing. Many tech stocks are close to new all time highs, including Canada's CSU and DSG.

Pretty wild! Huge divergence between tech stocks and everything else.
 
#24 ·
I opened a small position in XIT.

I want to experiment with a trend-following method where I chase the hottest Canadian sector. As I've done with other experimental strategies, I'm putting some real money into it (so that I take it seriously and am motivated to track it). It's a small amount of money, and pretty inconsequential at 0.7% of total investments.,

But here's the idea. Using some technical analysis that has served me well in the past, I'm going to try choosing between XEG, XFN, XIT to be exposed to the "hottest" sector. Historically, here is what the selection would have been in the past:
20530

Historically, the above selections (using the same technical analysis criteria as I'm now using) were good selections for their day. And you can see the market theme shifting over the years. The historical performance would have been 14.5% CAGR, compared to 6.9% for XIU though if you strip out the recent XIT years, the two returns become much more similar.

@MrBlackhill will likely ask, if this worked so well, why did I just post elsewhere that you probably can't achieve such high returns? That's a good question, and something I wonder about too. Many of these techniques seem great, on paper. But when you do it in real life, you just don't get those great returns.

It's likely due to hindsight bias. In hindsight, you can always craft the winning method but that doesn't mean this will work going forward. Another 10 years from now, there will be some other method -- something not obvious to us right now -- that is clearly the winning method.

A second issue is the problem of stamina and patience. My back test with this sector-chasing method showed some pretty long periods of disappointing results. The method is really about getting into the right position that captures the occasional, but HUGE, return of a sector that's on fire. XEG had huge returns in 2004 and 2005. But then, nothing too exciting happened from 2006 - 2011. When strength resumed, XFN gave some big results, but less dramatically so. More waiting through 2014-2016, until XIT started going ballistic.

So a big problem with this method is that I might have to wait around for years, seemingly in "dead money" before capturing a giant bull market. And I might be entering at such a bad, local peak, that I could see horrible results for the next ~ 8 years... which is probably long enough to make me give up on the method. Meaning that I miss out on the next bull theme.
 
#26 ·
But here's the idea. Using some technical analysis that has served me well in the past, I'm going to try choosing between XEG, XFN, XIT to be exposed to the "hottest" sector. Historically, here is what the selection would have been in the past:
Is this based on annual returns or it's another kind of analysis? Based on annual returns, the trend was not so obvious, that's why I'm wondering and I'm relating to your post about alternating between US Stock Market & Gold where the strategy was based on annual returns (but one could use 2-year returns or anything else).

From 2002 to 2010, the best annual performer was alternating between XEG and XIT, then XFN was the best in 2011 & 2012, then XIT from 2013 to 2020 except for 2016.
 
#25 ·
Quick additional note: I run these experiments to test out strategies I'm interested in, as real, forward-tests. Including this new sector-chasing method, I am now running 5 different experimental strategies. So far, I have not abandoned any since starting them a few years ago. This also gives me plenty to do, and is lots of fun.

All of this fits within my asset allocation plan. It just means that some of my equity holdings are not purely indexed, but invested in the strategies. For example, some are in the 5-pack, some are in a growth/momentum portfolio, etc.
 
#28 · (Edited)
(Deleted, see below)
 
#34 ·
XIT has been getting a boost lately from the insane rise of Blackberry

This has been an incredible couple of years for XIT, performing far better than QQQ and American tech.

Here's a chart of XIT in green, and QQQ in black, both in CAD. You can see that Canadian tech has been performing much better than the American sector.

21172
 
#35 · (Edited)
XIT has been getting a boost lately from the insane rise of Blackberry

This has been an incredible couple of years for XIT, performing far better than QQQ and American tech.

Here's a chart of XIT in green, and QQQ in black, both in CAD. You can see that Canadian tech has been performing much better than the American sector.

View attachment 21172
QQQ is not pure tech, so you should compare to XLK instead.

XIT.TO performed well in 2018 and 2019 after two years of underperformance in 2016 and 2017. Then 2020 wasn't any special.

Over 3 years, XIT.TO did well due to 2018 and 2019, but over 5 years XIT.TO did no more than almost as good as XLK.
 
#39 ·
For public company investing I don’t understand the logic of a fund focusing on technology companies in one country. Technology business is international (both in supply chain and customer opportunity). Without a doubt Canada has some terrific technology companies but they would be better placed in a diversified technology portfolio as opposed to mixed in with all (good and bad) technology companies that happen to be located in one country.
 
#40 ·
For public company investing I don’t understand the logic of a fund focusing on technology companies in one country. Technology business is international (both in supply chain and customer opportunity). Without a doubt Canada has some terrific technology companies but they would be better placed in a diversified technology portfolio as opposed to mixed in with all (good and bad) technology companies that happen to be located in one country
And perhaps broad index investing is the best way to tackle this anyway.

The S&P 500 has a large weighting of large tech companies. Even the TSX Composite contains tech companies.

So maybe the right thing to do is just stick with index investing and get our tech exposure through those holdings. And there are plenty. XAW for example has nearly 1% in TSMC... one of the world's best tech stocks.
 
#42 ·
Something else to keep in mind. Some companies many consider to be "tech" are not in Information Technology but in other sector classifications. TSLA and AMZN are consumer discretionary, GOOGL, FB, NFLX are communications services. None of these would be in IXN as a consequence (but it does have AAPL, MSFT...)
 
#43 ·
Buy TEC.TO and you'll have that exposure to "tech" stocks which are not part of the tech sector. They invest in tech-related stocks.
 
#44 ·
a little off topic, but I use IYW for my technology focused USD denominated ETF. I do not feel Canadian tech is broad based enough. I have in the past owned DSC and OTEX and CSU in the past, and BB at times (No BB currently) But I actually like to put 6-7 solid companies in sub indicies and I just could not do that in Canada in a way that left me feeling somewhat diversfied. I view Canada health care stocks the same way, but here jnj, mrk, pfz and abbv the four largest by market cap US stocks fill in these holes
 
#45 ·
I do not feel Canadian tech is broad based enough
The Canadian tech sector has improved from a decade or two ago. There was a time when holding Canadian tech only meant Nortel or RIM, but it's much better today.

Here are the % weights of the top holdings in XIT: 25%, 22%, 16%, 11%
For comparison, here are the top weights in XEG: 25%, 24%, 13%

Both of these are pretty reasonably diversified for a sector ETF. For example if you look at something like XLY (US consumer discretionary) you will see some similar high % weights of their top holdings. And if you look at XLE (energy multinationals) it's no better diversified either, with two massive holdings similar to what's seen above. That's despite XLE being a $14 billion fund of US energy giants.

My point is that Canadian tech, XIT, is actually pretty well diversified
 
#52 ·
One aspect of tech is the consolidation effect. In enterprise and vertical market software serial acquirers have grown by buying up smaller fish. In consumer tech it's a winner takes all category - three smartphone companies own the market, there are only a couple of social media companies.
 
#57 · (Edited)
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