This Global Technology ETF Is More Diversified

Written by Tony Dong, MSc, CETF® at The Motley Fool Canada

A lot of thematic exchange-traded funds (ETFs) look exciting on paper but fall short in practice. Common problems include narrow portfolios, concentrated bets on a handful of stocks, and high fees for what amounts to a niche index. When the theme is hot, they soar. When it cools, they can drop twice as fast.

If you’re looking for artificial intelligence (AI) exposure, sometimes the smarter route is to go with a broad, well-constructed technology sector ETF that also includes companies in adjacent fields. One I like in this regard is TD Global Technology Leaders Index ETF (TSX:TEC). Here’s what you need to know about this popular ETF.

TEC tracks the Solactive Global Technology Leaders Index, which is built from a portfolio of companies involved in traditional technology industries and those working in disruptive fields. This includes cybersecurity, the Internet of Things, e-commerce, robotics and automation, artificial intelligence, autonomous vehicles, and cloud computing/big data.

Its management expense ratio is 0.39%, reasonable for a global, sector-specific ETF. Over the past five years, it’s delivered an annualized return of 18.04%. With $3.33 billion in assets under management, it’s also one of the most popular tech ETFs in Canada.

The first reason is that it goes beyond just traditional tech names and AI pure plays. The portfolio also includes companies in fintech and medtech, which often get left out of other AI and tech ETFs despite their significant technological applications.

Second, it’s globally diversified. While U.S. tech giants make up a portion of the holdings, you’ll also find leading companies from Taiwan, the Netherlands, and other markets. That adds geographic diversification and exposure to innovation hubs outside North America.

Finally, it’s backed by a reputable ETF provider. TD’s asset management arm is a stable, established player in the Canadian ETF space. That’s important, especially when you consider the risks of smaller, less established issuers.

For example, Emerge ETFs faced a high-profile controversy when it was found to have receivables owing for multiple funds, leading to their delisting. With a major bank behind it, TEC doesn’t carry that same operational risk.

You don’t have to buy a narrow thematic ETF to get AI exposure. A diversified global technology ETF like TEC gives you that, plus exposure to other high-growth tech themes and industries. It’s a way to invest in the broader technology story without tying your fortunes to a single trend, and at a lower fee to boot.

The post Forget AI ETFs: This Global Technology ETF Is More Diversified appeared first on The Motley Fool Canada.

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Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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