Investing in Internet and technology oriented investment funds is one way of benefiting from diversification, particularly with ever-volatile technology companies, at the expense of some reward from picking what may be the next big boom company.

While it often is worthwhile to invest in individual technology stocks for a variety of reasons, such as strong knowledge of the company in particular, for many investors they may find ETFs a simpler way of riding the overall tide.

Investors then face a big question - of whether to utilize mutual funds, of which many investors are still used to, or exchange traded funds or "ETFs," which are still a relatively new innovation in the mainstream financial markets over the past decade.

Mutual Funds Vs. ETFs - A Comparison

In past decades there were many mutual funds oriented around technology that were successful, often either led by extraordinary money managers or those who simply got lucky and piggybacked off of the tech booms.of the late 1990's.

(Source: StockInvestor.com)

ETFs, although in existence since the 1990's, first become prominent in the general market only in the past decade. Now they are a multi-trillion dollar industry, with roughly 3,000 ETFs and $3.6 trillion in assets under management for just US-based ETFs as of January 2018, with $4.88 trillion worldwide.

(Source: TheStreet)

While there are many technical attributes separating ETFs and mutual funds, what really defines ETFs is essentially that they are a basket of securities that are priced continually during the day to the public market, and can be traded on the secondary markets at any time just like a regular stock.

Though still dwarfed by the overall mutual fund industry that stood at roughly 10,000 funds and about $17 trillion dollars in the United States, ETFs have been rapidly catching up and, particularly for technology investing, have become a strong alternative worth considering.

Some reasons why ETFs may, generally, be better than mutual funds for technology companies are:

• Baseline Fees: Lower fees, with an average below 0.5% compared to the typical 1% to 2% charged by mutual funds.
• Management Style: Indexed diversification, as compared to mutual funds' active-management. A money manager's bad calls can be devastating to a fund, and it can be difficult to find a good money manager.
• Without the time or resources to do such due diligence, a basket of stocks linked to a passive technology index may prove to be more safe and worthwhile.
• Complexity In Fee/Investment Arrangement: Many mutual funds also have various rules concerning minimum investment thresholds, load fees (an initial fee charged when buying the fund's shares), and sometimes even concerning disposition.
• The uncertainty in fees, often only understood by reading through long prospectuses, is one reason why mutual fund research can be both complex and time-consuming compared to the (usually) straightforward nature of ETFs.
• Uncertainty In Price: Mutual funds also face uncertainty in exact value when selling, as they are only priced once per day and the orders must be submitted before such pricing takes place for that day, which for volatile technology companies can often be of greater concern.
• Transparency In Investments: Although there are exceptions, particularly with actively-managed ETFs, the bulk of ETFs are linked to an index that operates under certain clear-rules for inclusion and weighting. Mutual funds are often actively managed, and although they operate usually under general guidelines there may be much more uncertainty in their precise current and expected investments, particularly as their holdings are published much more infrequently.

Note that each fund is different in terms of fee structure, stability, and management. A transparent mutual fund with a proven team and record, and a large amount of assets under management, may be far better than a fresh ETF with just a few assets under management (which creates instability) and an unclear record.

(Source: Visual Capitalist)

That is why even with my belief in the presumption than an ETF is structurally better than a mutual fund usually, we still will explore both technology ETFs as well as mutual funds - because there are a lot of great, well-managed, and upfront technology mutual funds out there and a lot of shady technology ETFs.

Each fund requires its own analysis at a level just about mirroring that one would give a stock. As we explore different technology ETFs and mutual funds in this Marketplace service, we shall see that even if they sound similar in terms of strategy and investments, they can vary very significantly in ways that can greatly impact risk and returns.

Comparing The Technology Funds: Mutual vs. Exchange-Traded

A quick comparison shows that the market has indeed understood the benefits of ETFs, particularly for many retail investors, over mutual funds.

It appears that the largest technology mutual fund at the moment is Vanguard's Information Technology Index Adm (VITAX), with about $19.6 billion in assets under management as of April 2018.

(Figure: Largest Technology Mutual Funds as of April 16th 2018, Source: MutualFunds.com)

There appear to overall be about 60 or so US-based technology mutual funds with assets above or around $1 billion, which is a relatively safe level of size to avoid many, but not all, risks from volatility and liquidity.

In comparison, the largest technology ETFs are led by the behemoth NASDAQ-indexed PowerShares QQQ that has over $60.2 billion in assets under management.

There are far fewer large technology ETFs, but the few big ones nonetheless still have quite a large amount of assets under management compared to the far more spread-out technology mutual funds.

(Figure: Largest technology ETFs as of April 16th 2018, Source: ETFdb.com)

Each fund is essentially its own company, and sometimes can be more complex to understand even than ordinary common stock itself - and thus requires serious in-depth analysis.