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Should You Buy or Fear the Dips in Technology ETFs?
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Wall Street has started rebounding from a three-day rough patch beginning Sep 3, after a strong August. This downturn induced by the sharp sell-off in technology stocks could have been a result of people rushing to book profits, may be due to worries over very high valuations, uncertainty over another pandemic stimulus package, budget negotiations and the approaching elections.
The Dow Jones Industrial Average saw a 1.6% increase on Sep 9. Moreover, the S&P 500 index gained 2% and the Nasdaq composite was up 2.7% on the same day. In fact, the broader market index witnessed its best day since Jun 5 when it inched up 2.6%, per a CNBC article. Moreover, the tech-heavy Nasdaq Index saw its biggest one-day gain since Apr 29 when it rose 3.6%.
The S&P 500 Information Technology Index was also up 3.4% on Sep 9 and witnessed its biggest one-day gain since late Apr 29, per a CNBC article. Meanwhile, the sector is still down 8.4% over the past week.
The technology sector has remained relatively strong amid the coronavirus crisis with major technology companies showing resilience to the pandemic, which in turn, significantly supported the market momentum this year. Overall, the second-quarter 2020 earnings season for the technology sector has also been impressive so far as companies braved the pandemic blues and delivered better results than anticipated by market participants.
Factors Steering the Tech Resurgence
The rest of 2020 is expected to keep bearing the brunt of the coronavirus outbreak as it continues to spread.In fact, the total number of coronavirus-infected cases crossed 6.3 million in the United States with the death toll touching at least 189,000.In the current scenario, certain new trends like rising work-from-home and online shopping trends are being observed.
Strikingly, even as the rebooting of the U.S. economy happens in phases and social-distancing restrictions are being eased, people are increasingly opting for contactless operations. It’s largely because the pandemic brought about some changes in lifestyle and influenced Americans’ preferences. Most surveys found out that people are more interested in online shopping rather than visiting a bricks-and-mortar store for their purchases of essential food items and supplies now.
Evidently, cloud computing has emerged as a key technology in the fight against coronavirus. It is backing organizations in remotely processing a lot of information, developing and running key applications and services, and helping employees across the world collaborate while working. The work-from-home model too bumped up the sales of PCs, laptops and other kind of computer peripherals.
Going by The NPD Group report, high growth categories in the technology sales witnessed in the June quarter were notebook computers, tablets, monitors, printers, keyboards and mice. The report further states that e-commerce purchases accounted for 69% of consumer technology sales in the second quarter, rising from 48% in the year-ago period.
Further, the semiconductor industry received a huge boost from the coronavirus crisis on solid demand for memory chips and other semiconductor products. Notably, stay-at-home and physical-distancing mandates are spurring demand for data center and gaming.
More and more people are spending time at home, in line with social-distancing guidelines due to the pandemic woes. As a result, they are resorting to the streaming platforms like Netflix, Amazon Prime or Disney+ or turning to social media platforms like Facebook and Twitter for in-house entertainment.
Upbeat Technology Sales Forecasts
Highlighting the instrumental role that technology is playing amid this ongoing COVID-19 uncertainty in aiding people to maintain social-distancing norms, The NPD Group’s Future of Tech report forecasts technology sales in fourth-quarter 2020 will see a historic growth rate of 18% year over year in comparison to the year-ago period’s 4% rise. Also, e-commerce is expected to represent more than 60% of the technology sales in the same period.
In this regard, Stephen Baker, vice president and industry advisor, The NPD Group said that “as we head into Q4 and into 2021, we’re forecasting that technology sales will remain strong as the pandemic has renewed recognition of the critical value of technology in the modern lifestyle, sped-up product upgrade cycles and created larger installed bases that will benefit the industry moving forward,” per The NPD Group report.
Technology ETFs to Consider
Under the prevalent scenario of the surging work-from-home and online shopping trends, increasing digital payments, growing video streaming and soaring video game sales are gradually becoming the “new normal.” With the new trends making way, a few major technology stocks are expected to keep gaining traction from the buoyancy in demand for their products and services.Investors seeking to ride the big tech rally could consider the following ETFs:
Vanguard Information Technology ETF (VGT - Free Report) — up 3.2% on Sep 9
The fund seeks to track the performance of the MSCI US Investable Market Information Technology 25/50 Index. It has an AUM of $36.35 billion and a daily volume of a million shares, on average. It charges investors 10 basis points (bps) in annual fees. The fund sports a Zacks ETF Rank #1 (Strong Buy) with a Medium-risk outlook (read: 5 Top-Ranked ETFs to Taste Apple's $2 Trillion Market Cap).
Technology Select Sector SPDR Fund (XLK - Free Report) — up 3.3%
The fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Technology Select Sector Index. It has an AUM of $35.02 billion and a daily volume of 14.8 million shares, on average. It charges investors 13 bps in annual fees. The fund flaunts a Zacks ETF Rank of 1 with a Medium-risk outlook (read: ETFs to Tap Warren Buffett's Investing Ideas as He Turns 90).
iShares U.S. Technology ETF (IYW - Free Report) — up 2.9%
The fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Dow Jones U.S. Technology Capped Index. It has an AUM of $6.09 billion, the average daily volume being around 181,000 shares. It charges investors 43 bps in annual fees as stated in the prospectus. The fund sports a Zacks #1 Ranked ETF with a Medium-risk outlook (read: ETFs, Stocks to Tap Last-Minute Back-to-School Shopping).
The fund seeks to invest in companies positioned to benefit from the increased adoption of cloud computing technology including companies which have principal businesses in offering computing Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS), Infrastructure-as-a-Service (IaaS), managed server storage space and data center real estate investment trusts, and/or cloud and edge computing infrastructure and hardware. It has an AUM of $1.08 billion, the average daily volume being around 988,000 shares. It charges investors 68 bps in annual fees. The fund sports a Zacks Rank #3 (Hold) (read: ETFs to Buy as Zoom Shares Surge 40% on Stellar Q2 Earnings).
Global X Cybersecurity ETF (BUG - Free Report) — up 1.8%
The fund seeks to invest in companies that stand to potentially benefit from the higher uptake of cybersecurity technology, such as those which have their principal businesses in developing and managing security protocols, preventing intrusion and attacks against systems, networks, applications, computers and mobile devices. It has an AUM of $38.8 million, the average daily volume being around 28,000 shares. It charges investors 50 bps in annual fees (read: Cybersecurity ETFs Maintain Strength on Solid Q2 Earnings).
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Should You Buy or Fear the Dips in Technology ETFs?
Wall Street has started rebounding from a three-day rough patch beginning Sep 3, after a strong August. This downturn induced by the sharp sell-off in technology stocks could have been a result of people rushing to book profits, may be due to worries over very high valuations, uncertainty over another pandemic stimulus package, budget negotiations and the approaching elections.
The Dow Jones Industrial Average saw a 1.6% increase on Sep 9. Moreover, the S&P 500 index gained 2% and the Nasdaq composite was up 2.7% on the same day. In fact, the broader market index witnessed its best day since Jun 5 when it inched up 2.6%, per a CNBC article. Moreover, the tech-heavy Nasdaq Index saw its biggest one-day gain since Apr 29 when it rose 3.6%.
The S&P 500 Information Technology Index was also up 3.4% on Sep 9 and witnessed its biggest one-day gain since late Apr 29, per a CNBC article. Meanwhile, the sector is still down 8.4% over the past week.
The technology sector has remained relatively strong amid the coronavirus crisis with major technology companies showing resilience to the pandemic, which in turn, significantly supported the market momentum this year. Overall, the second-quarter 2020 earnings season for the technology sector has also been impressive so far as companies braved the pandemic blues and delivered better results than anticipated by market participants.
Factors Steering the Tech Resurgence
The rest of 2020 is expected to keep bearing the brunt of the coronavirus outbreak as it continues to spread.In fact, the total number of coronavirus-infected cases crossed 6.3 million in the United States with the death toll touching at least 189,000.In the current scenario, certain new trends like rising work-from-home and online shopping trends are being observed.
Strikingly, even as the rebooting of the U.S. economy happens in phases and social-distancing restrictions are being eased, people are increasingly opting for contactless operations. It’s largely because the pandemic brought about some changes in lifestyle and influenced Americans’ preferences. Most surveys found out that people are more interested in online shopping rather than visiting a bricks-and-mortar store for their purchases of essential food items and supplies now.
Evidently, cloud computing has emerged as a key technology in the fight against coronavirus. It is backing organizations in remotely processing a lot of information, developing and running key applications and services, and helping employees across the world collaborate while working. The work-from-home model too bumped up the sales of PCs, laptops and other kind of computer peripherals.
Going by The NPD Group report, high growth categories in the technology sales witnessed in the June quarter were notebook computers, tablets, monitors, printers, keyboards and mice. The report further states that e-commerce purchases accounted for 69% of consumer technology sales in the second quarter, rising from 48% in the year-ago period.
Further, the semiconductor industry received a huge boost from the coronavirus crisis on solid demand for memory chips and other semiconductor products. Notably, stay-at-home and physical-distancing mandates are spurring demand for data center and gaming.
More and more people are spending time at home, in line with social-distancing guidelines due to the pandemic woes. As a result, they are resorting to the streaming platforms like Netflix, Amazon Prime or Disney+ or turning to social media platforms like Facebook and Twitter for in-house entertainment.
Upbeat Technology Sales Forecasts
Highlighting the instrumental role that technology is playing amid this ongoing COVID-19 uncertainty in aiding people to maintain social-distancing norms, The NPD Group’s Future of Tech report forecasts technology sales in fourth-quarter 2020 will see a historic growth rate of 18% year over year in comparison to the year-ago period’s 4% rise. Also, e-commerce is expected to represent more than 60% of the technology sales in the same period.
In this regard, Stephen Baker, vice president and industry advisor, The NPD Group said that “as we head into Q4 and into 2021, we’re forecasting that technology sales will remain strong as the pandemic has renewed recognition of the critical value of technology in the modern lifestyle, sped-up product upgrade cycles and created larger installed bases that will benefit the industry moving forward,” per The NPD Group report.
Technology ETFs to Consider
Under the prevalent scenario of the surging work-from-home and online shopping trends, increasing digital payments, growing video streaming and soaring video game sales are gradually becoming the “new normal.” With the new trends making way, a few major technology stocks are expected to keep gaining traction from the buoyancy in demand for their products and services.Investors seeking to ride the big tech rally could consider the following ETFs:
Vanguard Information Technology ETF (VGT - Free Report) — up 3.2% on Sep 9
The fund seeks to track the performance of the MSCI US Investable Market Information Technology 25/50 Index. It has an AUM of $36.35 billion and a daily volume of a million shares, on average. It charges investors 10 basis points (bps) in annual fees. The fund sports a Zacks ETF Rank #1 (Strong Buy) with a Medium-risk outlook (read: 5 Top-Ranked ETFs to Taste Apple's $2 Trillion Market Cap).
Technology Select Sector SPDR Fund (XLK - Free Report) — up 3.3%
The fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Technology Select Sector Index. It has an AUM of $35.02 billion and a daily volume of 14.8 million shares, on average. It charges investors 13 bps in annual fees. The fund flaunts a Zacks ETF Rank of 1 with a Medium-risk outlook (read: ETFs to Tap Warren Buffett's Investing Ideas as He Turns 90).
iShares U.S. Technology ETF (IYW - Free Report) — up 2.9%
The fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Dow Jones U.S. Technology Capped Index. It has an AUM of $6.09 billion, the average daily volume being around 181,000 shares. It charges investors 43 bps in annual fees as stated in the prospectus. The fund sports a Zacks #1 Ranked ETF with a Medium-risk outlook (read: ETFs, Stocks to Tap Last-Minute Back-to-School Shopping).
Global X Cloud Computing ETF (CLOU - Free Report) — up 2.5%
The fund seeks to invest in companies positioned to benefit from the increased adoption of cloud computing technology including companies which have principal businesses in offering computing Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS), Infrastructure-as-a-Service (IaaS), managed server storage space and data center real estate investment trusts, and/or cloud and edge computing infrastructure and hardware. It has an AUM of $1.08 billion, the average daily volume being around 988,000 shares. It charges investors 68 bps in annual fees. The fund sports a Zacks Rank #3 (Hold) (read: ETFs to Buy as Zoom Shares Surge 40% on Stellar Q2 Earnings).
Global X Cybersecurity ETF (BUG - Free Report) — up 1.8%
The fund seeks to invest in companies that stand to potentially benefit from the higher uptake of cybersecurity technology, such as those which have their principal businesses in developing and managing security protocols, preventing intrusion and attacks against systems, networks, applications, computers and mobile devices. It has an AUM of $38.8 million, the average daily volume being around 28,000 shares. It charges investors 50 bps in annual fees (read: Cybersecurity ETFs Maintain Strength on Solid Q2 Earnings).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>