Why This Invesco ETF Might Be the Most Underrated Index Fund Available Today

Tech exchange-traded funds (ETFs) have been some of the best-performing investments over the past few decades. They give investors access to a broad cross-section of the best technology stocks in one wrapper. This includes the biggest names, like Nvidia and Apple, the hottest tech stocks, like Sandisk and Micron Technology, and emerging stars you may have never even heard of -- yet.

There are some extremely popular tech ETFs that have delivered huge returns for investors over the years, like the Invesco QQQ (NASDAQ: QQQ), Vanguard Information Technology ETF (NYSEMKT: VGT), State Street Technology Select SPDR ETF (NYSEMKT: XLK), and iShares U.S Technology ETF (NYSEMKT: IYW).

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But there is one overlooked and underrated tech ETF that has outperformed them all over the years -- the Invesco Dorsey Wright Technology Momentum ETF (NASDAQ: PTF). If youʻre looking for a tech ETF, add this one to your list.

The best Invesco ETF -- and it's not QQQ

The Invesco Dorsey Wright Technology Momentum ETF is based on the Dorsey Wright Technology Technical Leaders Index, which tracks at least 30 technology stocks from the Nasdaq Composite that exhibit strong relative strength or momentum.

Stocks with the best relative strength are considered the strongest performers based on a proprietary methodology that determines a momentum score. The portfolio includes at least 30 of the highest-momentum stocks. The stocks can come from across the technology sector and include small-, mid-, and large-cap names.

Currently, the ETF contains 40 stocks with Sandisk, Nvidia, and Apple as the three largest holdings in the cap-weighted portfolio. Small-cap holdings include CACI International, InterDigital, and Vistance Networks.

The Invesco Dorsey Wright Technology Momentum ETF has been around since 2006. Since then, it has posted an average annualized return of 21%. Over the past one-, five-, and 10-year periods, it has had average annualized returns of 88%, 23%, and 26%, respectively. That beats its larger, aforementioned technology ETF competitors for every time period. And this year, as of May 21, this ETF has returned a whopping 58%.

The ETF has an expense ratio that is higher than average at 0.6%, but its consistent outperformance has more than accounted for it.

Investors should note this is a highly concentrated, sector-specific, aggressive-growth ETF, so it is prone to significant swings. But it does cast a wide net for tech stocks with momentum, so even in down markets, like 2022, it has outperformed the Nasdaq.

Investors may want to consider this underrated, overlooked ETF for the tech portion of their portfolio, as it will always hold the best-performing tech stocks at any given time. However, as an aggressive sector fund, it should be a relatively small part of a diversified portfolio.

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Micron Technology, and Nvidia. The Motley Fool has a disclosure policy.