Technology stocks — those involved in electronics, software, computers, artificial intelligence, and other information technology industries — are exciting. They are typically growth stocks. Tech indexes have typically outperformed the broader market over the long term. I don’t want to miss out on this potential for boosting my portfolio gains, so I have exposure to tech stocks, but in three different ways.
Tracking a tech index
I invest in tech growth stocks by holding units in the Legal & General Global Technology Index Trust in my SIPP. The trust passively tracks the performance of the FTSE World-technology Index. The trust’s historical tracking error is 0.42% gross of fees. Lower is better with tracking error, and this one suggests the trust does a good job of matching the index’s performance.
The table below shows the top five trust holdings as per the latest fund fact sheet. I can’t see any surprises as the big US tech names are there, along with the world’s largest dedicated independent semiconductor foundry.
Top five Legal & General Global Technology Index Trust holdings
| Company | Percentage of fund holdings |
| Apple Inc | 16.4 |
| Microsoft Corp | 13.2 |
| Alphabet | 8.8 |
| 4.2 | |
| Taiwan Semiconductor Manufacturing Company | 4.1 |
Source: Legal & General Global Technology Index Trust factsheet
The Legal & General Global Technology Index Trust declares itself a high risk with potentially high rewards offering. The index it tracks is concentrated in one sector, namely technology. Furthermore, the top 10 holdings account for 56% of the total value of the portfolio. Companies domiciled in the US account for 79% of the value of the portfolio. I can accept the risk, and so far, the rewards have been impressive: the trust has returned over 200% since 2016.
Scottish Mortgage Investment Trust
I also get exposure to technology stocks by holding Scottish Mortgage (LSE:SMT) shares in my ISA. In contrast to the passive Legal & General Global Technology Index Trust, Scottish Mortgage is a stock picker. It has built a portfolio of around 90 new-economy stocks that rely on technology or disruptive business models.
Top five Scottish Mortgage Investment Trust holdings
| Company | Percentage of fund holdings |
| Tencent | 6.5 |
| Illumina | 6.1 |
| Amazon.com | 5.9 |
| Tesla Inc | 5.1 |
| Nio | 4.8 |
Source: Scottish Mortgage Investment Trust factsheet
Scottish Mortgage states that it runs a medium to high-risk portfolio. It is not concentrated solely in the information technology sector. Also, the top 10 holdings of this portfolio make up 49% of its value. This may help to explain why the portfolio is deemed less risky than the Legal & General one. However, of the 90 or so stocks in the portfolio, 50 are private (16.1% assets). Private companies tend to be smaller and earlier in their lifecycle than public ones and more prone to failure. I am willing to accept the risks in exchange for potentially high rewards. Although past performance does not guarantee future performance, the Scottish Mortgage share price has risen nearly 900% over the last 10 years.
Tech stock picking
I also pick individual UK-listed technology stocks to hold for the long term in my portfolio. Stock picking can be rewarding, but it takes time and effort to identify companies with a sustainable competitive advantage, a great management team, solid revenue growth, positive operating cash flows, and a strong balance sheet. I am also aware that I could be completely wrong about my stock picks and lose everything.
