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Tech investors are turning to new opportunities this year as Cathie Wood’s flagship ARK Innovation ETF (ARKK) faces yet another tough year. Once a breakthrough favorite for those looking to tap into disruptive technologies, ARKK has seen over $2 billion in outflows and a year-to-date decline of 10.9%.
This shift comes as the fund missed out on key market moves, like selling Nvidia (NVDA) shares too early, just before the chipmaker’s stock skyrocketed by over 200% on the back of the AI boom.
Meanwhile, other standout tech-focused exchange-traded funds (ETFs) are stepping into the spotlight. The U.S. Digital Infrastructure and Real Estate ETF (IDGT), iShares Robotics and Artificial Intelligence ETF (ARTY), and First Trust Cloud Computing ETF (SKYY) are all outperforming ARKK this year. These ETFs offer a fresh approach for investors looking to diversify their tech exposure beyond the basics, blending established tech giants with innovative startups that are driving the next wave of technological change.
#1. U.S. Digital Infrastructure and Real Estate ETF
The U.S. Digital Infrastructure and Real Estate ETF (IDGT) has carved out a unique position in the digital infrastructure space since its inception in July 2001. IDGT's strategy involves tracking the S&P Data Center, Tower REIT, and Communications Equipment Index. This approach provides exposure to companies essential for storing, processing, and transmitting digital data—a sector experiencing rapid expansion due to increased reliance on digital services and AI technologies. As U.S. data center construction reaches unprecedented levels, IDGT's focus has proven particularly advantageous.
Currently trading at $77.97, this ETF has delivered an eye-catching 20.5% return year-to-date, significantly outpacing ARKK's performance. This growth is driven by its strategic focus on U.S.-listed companies involved in data centers, telecom towers, and related real estate, which are crucial for supporting the digital economy.
With $85.7 million in assets under management, IDGT maintains a lean portfolio of 35 holdings strategically spread across digital infrastructure and REITs. The fund's top holdings paint a picture of its focused approach: Digital Realty Trust (DLR) leads at 10.74%, followed by Equinix (EQIX) at 9.91%, American Tower (AMT) at 8.55%, and Crown Castle (CCI) at 8.26%.
Beyond its major holdings in established REITs, IDGT maintains strategic positions in emerging digital infrastructure companies like Fastly (FSLY), at 5.78%, which represents the fund's commitment to including innovative startups in the digital infrastructure space. This concentrated portfolio has helped drive the fund's impressive 40.4% return over the past 52 weeks.
What sets IDGT apart is its strategic allocation across three key sectors: Communications Equipment (30.34%), Telecom Tower REITs (22.33%), and Data Center REITs (19.46%). This mix has proven particularly potent in 2024, as U.S. data center construction hits record levels and 5G network expansion continues.
The fund charges a reasonable 0.41% expense ratio and offers a quarterly dividend with a 2.50% yield, making it an attractive option for those seeking both growth and income.
IDGT's success against ARKK stems from its laser focus on companies that own and operate essential digital infrastructure, rather than betting on speculative tech innovations. As businesses increasingly rely on cloud services and data processing, the demand for physical digital infrastructure continues to grow, providing steady tailwinds for IDGT's holdings.
#2. iShares Future AI & Tech ETF
Since its launch in June 2018, the iShares Future AI & Tech ETF (ARTY) has positioned itself at the intersection of artificial intelligence and emerging technologies. The fund's sophisticated strategy targets companies across three key segments: AI infrastructure providers, AI technology developers, and AI implementers.
This means investing in firms that not only create AI algorithms, but also those that build the specialized processors, design AI-optimized data centers, and develop the software frameworks that make AI applications possible. The fund specifically weights companies based on their AI revenue exposure, patent strength, and market position in AI-specific hardware.
What makes ARTY particularly interesting is its concentrated portfolio of 64 holdings, with 42.52% of assets strategically placed in its top 10 positions. The fund's top five holdings reflect its focus on companies driving AI innovation: Nvidia (NVDA) leads with 6.44%, followed by Broadcom (AVGO) at 5.82%, and Advanced Micro Devices (AMD) at 5.65%.
While ARTY holds tech giants like Nvidia, it also allocates significant portions to emerging AI players. This includes positions in growth companies like Super Micro Computer (SMCI), at 5.65%, and Palantir Technologies (PLTR), at 3.48%, demonstrating the fund's commitment to capturing innovation from both established and emerging tech companies. These companies aren't just developing AI; they're providing the essential hardware and infrastructure that powers it.
As one of the larger AI-focused funds in the market, ARTY commands $590.4 million in assets under management, reflecting strong interest in its focused approach. The fund charges a 0.47% expense ratio and offers a modest 0.67% yield, paid semiannually.
ARTY has dipped 2.3% on a YTD basis, but still has a 52-week return of 16.8% under its belt.
ARTY's edge over ARKK comes from its balanced exposure to both established tech leaders and emerging AI innovators. Unlike ARKK's broader disruptive technology focus, ARTY maintains a disciplined approach to AI-related investments, focusing on companies with proven technology and strong market positions. This strategy has proven particularly effective as AI adoption accelerates across industries, driving demand for both hardware and software solutions.
#3. First Trust Cloud Computing ETF
The First Trust Cloud Computing ETF (SKYY), launched in July 2011, has emerged as a dominant force in the cloud computing investment space. The fund's strategy is particularly sophisticated, employing a three-tiered classification system that categorizes companies as pure-play cloud companies, non-pure-play cloud companies, or technology conglomerate cloud companies.
This approach ensures comprehensive exposure to the entire cloud computing ecosystem, from infrastructure providers to software developers and service providers. The fund specifically weights holdings based on their cloud revenue contribution, market capitalization, and technological innovation in cloud services.
Currently trading at $107.37, SKYY has delivered an impressive 47.3% return over the past 52 weeks, significantly outperforming broader tech indices.
The fund's portfolio of 65 holdings is carefully balanced, with its top five positions showcasing the diversity of cloud computing leaders: Oracle Corporation (ORCL) at 4.44%; Arista Networks (ANET) at 4.03%; IBM (IBM) at 3.89%; Amazon (AMZN) at 3.76%; and Pure Storage (PSTG) at 3.75%. This strategic allocation has helped drive the fund's substantial 22.5% year-to-date gain.
SKYY boasts assets under management totaling $3.15 billion, making it one of the largest cloud-focused ETFs in the market. The fund maintains a 0.60% expense ratio, which, while not the lowest in its category, reflects the specialized nature of its investment approach. Unlike many tech ETFs, SKYY currently focuses purely on capital appreciation rather than dividend distribution, aligning with the growth-oriented nature of cloud computing companies.
SKYY's advantage over ARKK stems from its laser focus on cloud computing infrastructure and services, a sector experiencing unprecedented growth as businesses accelerate their digital transformation initiatives. The fund's modified equal-weighted approach, with a 4.5% cap on individual holdings, helps maintain diversification while still capturing the growth potential of both established players and emerging cloud innovators. This balanced strategy has proven particularly effective in 2024, as cloud adoption continues to surge across industries.
Conclusion
These three ETFs offer a fresh take on growth-oriented tech investing beyond ARKK's approach. Each fund brings something unique; IDGT captures the digital infrastructure boom, ARTY taps into the AI revolution, and SKYY rides the cloud computing wave. Their mix of established tech leaders and promising startups, combined with strong 2024 performance, makes them worth considering for anyone looking to diversify their tech holdings.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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