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The technology sector continues to lead the market in 2025, with returns of nearly 28% year-to-date (YTD), significantly outpacing the overall S&P 500’s 17% gain. This impressive performance, fueled by a handful of dominant companies, has sparked debate among investors regarding a potential AI-driven bubble inflating valuations across the broader market.
Despite the uncertainty, tech stocks and related exchange-traded funds (ETFs) have offered substantial returns this year. While past performance doesn’t guarantee future success, the ongoing boom in artificial intelligence and related industries suggests this momentum could persist. Here’s a closer look at three prominent tech-focused ETFs and their strategies.
Early Cloud Computing Fund With A Wider Tech Reach
The First Trust Cloud Computing ETF (SKYY) pioneered a narrow focus on the cloud computing industry in the United States. Established nearly 15 years ago, SKYY boasts approximately $3.3 billion in managed assets. However, its specialized strategy results in a relatively low average trading volume of around 156,000 shares per month.
SKYY’s portfolio comprises under 70 holdings, with the top 10 positions accounting for nearly 40% of invested assets. These include major tech companies with cloud computing divisions, as well as pure-play cloud firms. This approach allows SKYY to benefit from overall sector growth, but may dilute its focus on specific cloud industry advancements. Fortunately, the broader tech sector’s gains have propelled SKYY’s value by roughly 35% in the last six months, making its 0.60% annual fee attractive to many investors.
Developed Markets AI Focus Has Sent AIQ Soaring
The Global X Artificial Intelligence & Technology ETF (AIQ) presents a newer and more liquid alternative, with an asset base exceeding $6.6 billion and trading volume more than ten times that of SKYY. AIQ uniquely targets both the hardware enabling AI and companies across various sectors poised to benefit from AI developments.
Approximately 71% of AIQ’s holdings reside within the information technology sector, with additional investments in consumer discretionary, communication services, and industrials. Unlike SKYY, AIQ invests in companies from multiple developed markets, although U.S. firms still represent over two-thirds of its nearly 90 holdings. AIQ has experienced a remarkable surge of nearly 44% in the last six months, with an expense ratio of 0.68%.
FTEC Is A Low-Cost, Highly Diversified Fund… But Watch Out For Portfolio Concentration
The iShares Expanded Tech Sector ETF (FTEC) stands out as the most cost-effective option, with an annual fee of just 0.08%. As a broad-based tech sector fund, FTEC holds close to 300 names. However, investors should be aware that its diversification is somewhat misleading, as the top three holdings constitute around 42% of invested assets.
With nearly $17 billion in assets under management, FTEC is the largest fund of the three. Its trading volume, however, is more comparable to SKYY than AIQ, potentially raising liquidity concerns for some investors. Despite this, FTEC has demonstrated the strongest performance in the last six months, skyrocketing by over 45%. This makes FTEC a compelling choice for buy-and-hold investors seeking straightforward access to the tech space.
Ultimately, the optimal ETF choice depends on individual investment goals and risk tolerance. As the AI revolution continues to unfold, these funds offer diverse pathways to participate in the ongoing growth of the technology sector.
