Why have technology ETFs done so well?

Our Founder & CEO Holly Mackay tackles a reader question on why technology ETFs have proven so popular in recent months, plus why she has a "soft spot" for investment trusts.

I was reading your piece on the 'Best-selling funds, investment trusts and ETFs of January 2024' and what caught my eye was the iShares S&P 500 Info and Tech ETF, which you mention given that 4 major tech stocks make up about 55% of this ETF. When I did some further research on it, I discovered that it's capped 35/20.

"An undeniably cheap and easy way to access the sector", you wrote. Is it cheap because of the 35/20 cap? Is capping the catch? I am perplexed. The 3 and 5-year performances of this ETF are impressive.

And one more question, if I may? Having taken a close look at your choices in ‘Holly’s investments’, I couldn’t fail to notice you having a soft spot for investment trusts. Why is that, if I may ask so? Everywhere I looked, everything I read (well, almost everything) about them, people are very apprehensive. Would you very briefly let me have your take?

Boring Money reader

Let’s start with ETFs or Exchange Traded Funds. ETFs are cheap because it’s just a computer automatically picking all the shares in an index, in proportion to their weighting. So limited brain power and lots of cheap automation. I guess this is the equivalent of ChatGPT writing a 10-year-olds’ homework. If it’s factual, they will probably get the answers right and it’s easier than trying to bribe a 10-year-old to do it.

So I tell the computers to buy everything in the FTSE 100, for example. And if HSBC is 6% of the FTSE today, then put £6 out of every £100 here. Job done. No need for smart, expensively educated people to use experience, gut feel, superior research or anything else. By definition, you are buying the average performance of everything in the index.

As for the 35/20 cap – it’s the rules. I won’t bore you with the details but if