After regaining some momentum following a sharp sell-off in early September, the technology sector resumed its decline after the Fed warned that the economic outlook remains “highly uncertain”. Concerns over lofty valuations, budget negotiations, election uncertainty and geopolitics continued to make investors’ jittery.
According to the Bank of America’s latest global fund manager survey, the technology sector currently became the most “crowded trade” of all time as too many investors have piled into these stocks. The survey shows that a tech bubble is the biggest risk after an expected second wave from the COVID-19 pandemic. About 30% of fund managers in the survey considered the second spike of the virus to be the biggest risk while 22% were most scared of a ‘tech bubble’ after investors piled into Internet winners from the disruption of the pandemic (read: ETF Winners & Losers From Wall Street’s Worst Day Since June).
In a note in late August, Bank of America Global Research stated that U.S. tech stocks’ market value surpassed the entire European stock market for the first time after surging through summer. Notably, the tech sector is worth $9.1 trillion while European stocks — including those in the UK and Switzerland — are worth a collective $8.9 trillion. Much of the value is concentrated on the top five tech giants: Apple AAPL, Microsoft MSFT, Alphabet GOOGL, Amazon AMZN and Facebook FB. Together, these companies account for nearly 24% of the S&P 500 and are worth roughly $7.5 trillion.
The sector has shown resilience in one of the worst economic environments that the United States has ever seen. The outlook for the tech sector remains solid given the global digital shift that has accelerated e-commerce for everything ranging from remote working to entertainment and shopping. The rapid adoption of cloud computing, big data, Internet of Things, wearables, VR headsets, drones, virtual reality, artificial intelligence, machine learning, digital communication and 5G technology will continue to drive the sector higher. As companies across sectors and many individuals are dependent on remote working, cloud-computing services have become essential (read: Why Cloud Computing Stocks & ETFs Soared This Year).
Further, technology has a solid Zacks Sector Rank, being in the top 50%, suggesting continued outperformance in the coming months.
As such, investors should take advantage of the beaten down prices. For them, we have highlighted some solid ETF picks that were in red over the past month but have a solid upside potential. All these have a Zacks Rank #1 (Strong Buy) or 2 (Buy).
iShares North American Tech-Multimedia Networking ETF IGN — Down 9.5%
This ETF provides exposure to telecom equipment, data networking and wireless equipment companies by tracking the S&P North American Technology-Multimedia Networking Index. It holds 22 securities in its basket and has accumulated $43.2 million in its asset base. Expense ratio comes in at 0.46%. The product sees a lower volume of around 49,000 shares a day and carries a Zacks ETF Rank #2.
SPDR S&P Internet ETF XWEB – Down 9.5%
This product targets the Internet corner of the broad tech space and follows the S&P Internet Select Industry Index. It charges 35 bps in annual fees and trades in a volume of 8,000 shares. With AUM of $33.9 million, the fund holds 44 stocks in its basket and carries a Zacks ETF Rank #2.
Invesco Dynamic Semiconductors ETF PSI – Down 6.8%
This fund targets the semiconductor corner of the brad technology sector and tracks the Dynamic Semiconductor Intellidex Index, holding 31 securities in its basket. It has AUM of $262.3 million and sees moderate average daily volume of 29,000 shares. The fund charges 58 bps in annual fees and has a Zacks ETF Rank #1 (read: 5 Reasons to Buy Semiconductor ETFs).
Invesco Dynamic Networking ETF PXQ – Down 6.4%
This fund follows the Dynamic Networking Intellidex Index and offers exposure to 31 companies that are principally engaged in the development, manufacture, sale or distribution of products, services or technologies that support the flow of electronic information, including voice, data, images and commercial transactions. The fund is relatively unpopular and illiquid in the broad technology space with AUM of $50.5 million and average daily volume of about 3,000 shares. It charges 63 bps in annual fees and has a Zacks ETF Rank #2.
WisdomTree Cloud Computing Fund WCLD – Down 5.1%
This fund offers exposure to emerging, fast-growing U.S.-listed companies (including ADRs) primarily focused on cloud software and services, and follows the BVP Nasdaq Emerging Cloud Index. It holds 54 stocks in its basket and charges investors 45 bps in fees per year. The product has amassed $724.3 million in its asset base and trades in average daily volume of 782,000 shares. It has a Zacks ETF Rank #2.
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Microsoft Corporation (MSFT): Free Stock Analysis Report
Amazon.com, Inc. (AMZN): Free Stock Analysis Report
Apple Inc. (AAPL): Free Stock Analysis Report
Facebook, Inc. (FB): Free Stock Analysis Report
Alphabet Inc. (GOOGL): Free Stock Analysis Report
Invesco Dynamic Semiconductors ETF (PSI): ETF Research Reports
SPDR SP Internet ETF (XWEB): ETF Research Reports
Invesco Dynamic Networking ETF (PXQ): ETF Research Reports
iShares North American TechMultimedia Networking ETF (IGN): ETF Research Reports
WisdomTree Cloud Computing ETF (WCLD): ETF Research Reports
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