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Time to Buy These Undervalued Tech ETFs on the Dip?

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The year 2021 has brought with it a rising rate trend (thanks to stimulus and vaccine optimism) and thus the hatred for growth stocks. Since tech stocks are high-growth in nature, the tech-heavy Nasdaq is the worst performer this year among the big three indexes.

This is because the tech bunch of growth stocks that won during the pandemic-ridden 2020 on low rates are now getting a bashing on rising rates. The Nasdaq Composite has gained 3.2% past month while the S&P 500 is up 1.1%and the Dow Jones has gained 4.4%. Meanwhile, the biggest tech ETF XLK has retreated about 2.4% (read: Bet on Cash-Rich Tech ETFs & Stay Away From the Rout).

Fund managers lowered their tech weighting to the lowest overweight position since January 2009, according to a new survey out this week from Bank of America, as quoted on Yahoo Finance. The survey showed that 34% of fund managers view bullish bets on tech as a crowded trade, marking a sharp decline from 80% polled in Sep 20.

Why Is Tech Likely to Rebound Over the Long Term?

Agreed, the coronavirus scare is ebbing with growing vaccination and may lower the demand for digitization (as social distancing mandates will now be eased). But that does not cut the demand and fundamental strength of the technology sector. This has evolved as a long-term bet. Digitization is a part and parcel of the modern-era society and here’s where tech will rebound in the coming days. The sector may be losing now on rate worries, but holds strong potential on the fast emergence of the fourth industrial revolution (per Wedbush tech analyst Dan Ives, as quoted on Yahoo Finance).

Coming to rate issues, the Leuthold Group chief investment officer Jim Paulsenindicated that “since 1950, tech stocks have thrived when the 10-year bond yield has been lower than 5%, beating the overall market by a 5.8% annualized pace and outpacing 61% of the time. For all quarters since 1947 when bond yields have increased, tech stocks outperformed on average at a 4.9% annualized clip while trailing the overall stock market by an average annualized 1.8% during quarters when yields declined," as quoted on Yahoo Finance.

This calls for keeping calm as long as tech investing is concerned. 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, tech stocks got a bashing recently mainly due to lofty valuations and an unfavorable operating backdrop like rising rates. Though valuations got corrected to some 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 relatively low P/E ratios in the space. These ETFs have way lower P/E than the likes of Invesco DWA Technology Momentum ETF (PTF - Free Report) (273.81X), Global X Cloud Computing ETF (CLOU - Free Report) (90.95X) and Global X Cybersecurity ETF (BUG - Free Report) (63.91X). Concept-wise also, these ETFs offer good potential.

Low P/E Tech ETFs in Focus

First Trust NASDAQ Technology Dividend Index Fund (TDIV - Free Report) – P/E 19.49X

The underlying NASDAQ Technology Dividend Index includes up to 100 Technology and Telecommunications companies that pay a regular or common dividend. It yields 1.90% annually.

Invesco S&P 500Equal Weight Technology ETF (RYT - Free Report) – P/E 24.37X

The underlying S&P 500 Equal Weight Information Technology Index equally weights stocks in the information technology sector of the S&P 500 Index. It charges 40 bps in fees and yields 1.22% annually.

SPDR S&P Future Security ETF (FITE - Free Report) – 26.42X

The underlying S&P Kensho Future Security Index comprises U.S.-listed equity securities of companies domiciled across developed and emerging markets worldwide that are included in the Future Security sector. It charges 45 bps in fees and yields 0.82% annually.

Defiance Quantum ETF (QTUM - Free Report) – 27.71X

The underlying BlueStar Quantum Computing and Machine Learning Index consists of a modified equal-weighted portfolio of the stock of companies whose products or services are predominantly tied to the development of quantum computing and machine learning technology. It charges 40 bps in fees and yields 0.43% annually.

First Trust NASDAQ CEA Cybersecurity ETF (CIBR - Free Report) – 28.36X

The underlying Nasdaq CTA Cybersecurity Index tracks the performance of companies engaged in the cybersecurity segment of the technology and industrials sectors. It charges 60 bps in fees and yields 1.14% annually (read: A Quick Guide to Cyber Security ETFs).

First Trust ISE Cloud Computing Index Fund (SKYY - Free Report) – 28.69X

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. It charges 60 bps in fees (read: A Comprehensive Guide to Cloud Computing ETFs).

Technology Select Sector SPDR Fund (XLK - Free Report) – 29.23X

The underlying Technology Select Sector Index includes companies from the following industries: computers & peripherals; software; diversified telecommunication services; communications equipment; semiconductor & semiconductor equipment; internet software & services; IT services; wireless telecommunication services; electronic equipment & instruments; and office electronics. It charges 12 bps in fees and yields 0.89% annually.

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