Technology

Where the money actually sits

The category holds 44 funds and 1121.9B in combined assets, and those assets are not spread evenly. Invesco QQQ Trust (QQQ), run by Invesco, holds 498.9B on its own, and the three largest, Invesco QQQ Trust (QQQ), Vanguard Information Technology ETF (VGT) and Technology Select Sector SPDR Fund (XLK), account for 71.7 % of the total. At the other end, Global X Video Games & Esports ETF (HERO) manages only 62M. Size is no guarantee of quality, but it decides two very concrete things: the spread between buying and selling price you pay on every order, and the odds that the fund still exists in ten years.

The fee gap, in money

Ongoing charges run from 0.09 % for Technology Select Sector SPDR Fund (XLK) to 0.95 % for ProShares Short QQQ (PSQ), a gap of 0.86 points, against a category average of 0.44 %. On £10,000 held for ten years that gap is roughly 860 in extra charges, before counting the return that money would itself have earned. It is the one variable in the comparison known in advance: past performance does not repeat, fees repeat every year.

Two funds in one category do not hold the same basket

The 44 funds listed track 37 different indices, among them Nasdaq-100, MSCI US Investable Market Information Technology 25/50, Technology Select Sector and ICE Semiconductor. The largest tracks Nasdaq-100. That spread is why two funds filed under the same theme can differ by several points over a year: they hold different securities, weight them differently and rebalance on different dates. Each fund page names its index, and that is where a serious comparison starts.

Replication and domicile

36 funds hold the constituents of their index directly, 8 use a swap, including ProShares UltraPro QQQ (TQQQ) from ProShares. Synthetic replication often tracks more closely and reaches markets that are hard to hold directly, at the price of a counterparty risk that is regulated but real. Physical replication is easier to understand and allows securities lending, which earns the fund income and adds its own risk.

20 of the 44 funds are domiciled in US, the rest in IE, FR and DE. Domicile sets the withholding tax the fund itself suffers on the dividends it receives, a cost absent from the stated fee but present in the return, and it also sets your own tax treatment depending on where you live.

Accumulate or take the income

21 funds accumulate dividends, 23 pay them out. The largest accumulating share class is iShares S&P 500 Information Technology Sector UCITS ETF USD (Acc) (IUIT), the largest distributing one Invesco QQQ Trust (QQQ). The choice is not about yield, both versions of the same index return the same before tax, but about tax and discipline: the accumulating class reinvests with no cost and no decision, the distributing class pays income that is taxable in the year it arrives.

Age and critical size

The oldest fund in the category, Technology Select Sector SPDR Fund (XLK), launched on 1998-12-16, giving 28 years of history, and the newest, iShares Metaverse UCITS ETF USD (Acc) (UNIC), on 2022-12-06. A long record shows how the fund behaved in a fall, which no one-year number can. A fund launched two years ago has lived through a single market regime.

1 of the 44 funds manage under 100 million, among them Global X Video Games & Esports ETF (HERO). Below that level a fund rarely pays for its issuer, and a closure forces a sale on the issuer's timetable rather than yours, with capital gains tax along the way.