A pooled investment, an ETF resembles a mutual fund and allows you to follow an identified index or sector. So, if tech is your target, a tech-centric ETF is a good option.
“Even if the share price of stocks like Amazon or Alphabet is out of your price range, an exchange-traded fund or mutual fund gives you instant diversification across hundreds or even thousands of stocks with a minimal investment and regardless of the share price of the individual stocks in the fund,” Bankrate.com chief financial analyst Greg McBride said.
What is an ETF?
An ETF can be a powerful tool for building your well-diversified portfolio.
“ETFs are baskets of securities designed to provide exposure to different areas of the market,” explained Greg Friedman, Fidelity’s head of ETF management and strategy.
He said that ETFs are offered on virtually all asset classes, and trade throughout the day, anytime the market is open. Plus, Friedman said that ETFs can be more tax-efficient compared to traditional mutual funds.
How do ETFs allow you to capture tech stocks?
Friedman said many ETFs attempt to track the performance of an index, which can track the overall market or a targeted subset of the market.
If you’re interested in tech stocks, Friedman noted that industry sector ETFs invest in the stocks and securities of specific industry sectors.
“For example, Fidelity MSCI Information Technology Index ETF aims to track the performance of the information technology sector in the U.S. equity market,” he added.
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Also, some ETFs are actively managed and aim to outperform a benchmark, he explained.
“Fidelity’s actively managed equity ETFs seek to combine the potential for outperformance with the trading and tax efficiency benefits of an ETF,” he said.
For example, Fidelity Blue Chip Growth ETF invests in domestic large-cap companies with above-average growth potential, including many tech giants.
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Stocks of these companies are often called “growth” stocks, Friedman said.