The month of September can be marked by the start of a rout in technology shares as investors began booking profits from this winning segment of the coronavirus crisis. The tech-heavy Nasdaq Composite underperformed compared with its other key U.S. peers.
However, the pain in the tech space looks to be receding as tech shares survived the broader market selloff caused on Sep 21. The tech-heavy Nasdaq lost the least (down 0.13%) compared with the S&P 500 (down 1.16%), the Dow Jones (down 1.84%), the small-cap index Russell 2000 (down about 3.4%) and even the safe asset gold (down about 2.3%). The broader Technology Select Sector SPDR Fund (XLK - Free Report) was, in fact, up 0.8% on Sep 21.
Why Is Tech Likely to Gain Ahead?
Rising coronavirus cases in the United States and Europe, and “allegations of major banks engaging in transferring illicit funds over decades” started to weigh on investors’ sentiments to start the week. Notably, there has been an alarming rise in new COVID-19 cases in Arkansas, Colorado, Idaho, Montana, Nebraska and North Dakota over the past week. This piece of information triggered the fear of more phases of lockdowns and stalled economic recovery.
More coronavirus casesmean more uncertainty in health emergency and the related economic recovery. This also ensures a prolonged period of social distancing norms and continued surge in digitization. Plus, the latest correction in tech shares opens up a great opportunity to enter the space.
Why Low P/E ETFs?
As you can understand, FAANGs got a bashing recently mainly due to lofty valuations. Though valuations got corrected to a large extent in the recent selloff, things may remain volatile.
So, overvaluation issues are likely to bother the space intermittently. But the huge long-term prospects for cutting-edge technology demands tech stocks in investors’ portfolio. So, investors fearing another correction in the near term, might want to opt for low P/E tech funds.
Below we highlight a few tech ETFs that have low P/E ratios in the space. These ETFs have lower P/E than the largest tech ETF XLK (28.58X). Concept-wise also, these ETFs offer good potential.
iShares Cybersecurity and Tech ETF IHAK) – P/E 20.19X
The underlying NYSE FactSet Global Cyber Security Index comprises developed and emerging market companies involved in cyber security and technology, including cyber security hardware, software, products, and services. It charges 47 bps in fees.
First Trust NASDAQ Technology Dividend Index Fund (TDIV - Free Report) – P/E 20.56X
The underlying NASDAQ Technology Dividend Index includes up to 100 Technology and Telecommunications companies that pay a regular or common dividend. It yields 2.25% annually (read: Oracle Partners With TikTok : ETFs to Gain).
First Trust ISE Cloud Computing Index Fund (SKYY - Free Report) – P/E 21.98X
The underlying ISE Cloud Computing Index is a modified market-capitalization weighted index designed to track the performance of companies actively involved in the cloud computing industry. The fund charges 60 bps in fees.
SPDR S&P Software & Services ETF (XSW - Free Report) – P/E 28.00X
The underlying S&P Software & Services Select Industry Index represents the software sub-industry portion of the S&P Total Stock Market Index. The fund charges 35 bps in fees.
VanEck Vectors Semiconductor ETF (SMH - Free Report) – P/E 28.16X
The underlying MVIS US Listed Semiconductor 25 Index tracks the overall performance of companies involved in semiconductor production and equipment. The fund charges 35 bps in fees.
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 >>