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With the Fed turning surprisingly hawkish in its latest FOMC meeting, the broad market rally stalled. However, the technology sector, which generally performs better when interest rates are low, showed strength on the view that low interest rates will remain in place for at least more than a year. This should provide a boost to the stocks.
Though the Fed has signaled two rate hikes by the end of 2023 amid higher inflation, it views inflation as temporary and maintained its interest rates near zero. The rapid vaccinations have reduced the spread of COVID-19 in the United States, and thus economic activity and employment have strengthened (read: Fed Rate Hike in the Cards? ETFs to Buy).
The central bank raised GDP growth from 6.5% to 7% for this year, the fastest calendar-year expansion since 1984. It also expects inflation to run hot this year to 3.4%, well above the goal of 2%, before receding to 2.1% in 2022. The strong economy will continue to fuel demand in the sector.
Further, the sector outlook remains solid given the global digital shift even in the post-COVID world with the acceleration in e-commerce for everything, ranging from remote working to entertainment and shopping. The rapid adoption of cloud computing, big data, IoT, wearables, VR headsets, drones, virtual reality, AI, machine learning, digital communication and 5G technology will continue to drive the sector higher (see: all the Technology ETFs here).
Against this backdrop, a number of tech ETFs hit all-time highs in the last trading session. Any of these could be excellent plays for investors looking to ride out the current trend given their high momentum, enough liquidity, popular options and a broad exposure across industries in the sector.
This is the most popular technology ETF, which follows the Technology Select Sector Index and has $40.5 billion in AUM. It charges 12 bps in fees per year from investors and trades in a heavy volume of around 6.7 million shares a day on average. The fund holds about 74 securities in its basket and is widely spread across software, technology hardware storage & peripherals, semiconductors, and IT services that make up for a double-digit allocation each. It has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Time to Take a Bite Out of Apple? ETFs in Focus).
This fund manages $45 billion in its asset base and provides exposure to technology companies that serve the electronics and computer industries or those that manufacture products. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. The ETF has 0.10% in expense ratio while volume is solid at nearly 404,000 shares. It has a Zacks ETF Rank #2 with a Medium risk outlook.
This ETF offers exposure to U.S. electronics, computer software and hardware, and informational technology companies by tracking the Dow Jones US Technology Index. The fund amassed $7.2 billion in its asset base and charges 43 bps in fees and expenses. Volume is good as it exchanges nearly 287,000 shares in hand a day. The fund has a Zacks ETF Rank #2 with a Medium risk outlook (read: Best ETFs to Invest in Big Tech).
This is an active ETF that employs data science techniques to provide exposure to technology stocks. Software and services takes the largest share at 41.6% while media & entertainment, tech hardware & equipment, and semiconductors & semiconductor equipment round off the next spots with double-digit exposure each. IETC accumulated $103.4 million in its asset base and trades in a light volume of 16,000 shares. It charges 18 bps in annual fees.
With AUM of $3.4 billion, this ETF offers exposure to the technology sector, and technology-related companies in the communication services and consumer discretionary sectors by tracking the S&P North American Technology Sector Index. It holds 309 stocks in its basket with key holdings in interactive media & services, semiconductors, systems software, data processing & outsourced services, and application software. The fund charges 46 bps in annual fees and trades in a moderate average volume of nearly 39,000 shares a day. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
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Tech ETFs Hit New Peaks Despite Hawkish Fed
With the Fed turning surprisingly hawkish in its latest FOMC meeting, the broad market rally stalled. However, the technology sector, which generally performs better when interest rates are low, showed strength on the view that low interest rates will remain in place for at least more than a year. This should provide a boost to the stocks.
Though the Fed has signaled two rate hikes by the end of 2023 amid higher inflation, it views inflation as temporary and maintained its interest rates near zero. The rapid vaccinations have reduced the spread of COVID-19 in the United States, and thus economic activity and employment have strengthened (read: Fed Rate Hike in the Cards? ETFs to Buy).
The central bank raised GDP growth from 6.5% to 7% for this year, the fastest calendar-year expansion since 1984. It also expects inflation to run hot this year to 3.4%, well above the goal of 2%, before receding to 2.1% in 2022. The strong economy will continue to fuel demand in the sector.
Further, the sector outlook remains solid given the global digital shift even in the post-COVID world with the acceleration in e-commerce for everything, ranging from remote working to entertainment and shopping. The rapid adoption of cloud computing, big data, IoT, wearables, VR headsets, drones, virtual reality, AI, machine learning, digital communication and 5G technology will continue to drive the sector higher (see: all the Technology ETFs here).
Against this backdrop, a number of tech ETFs hit all-time highs in the last trading session. Any of these could be excellent plays for investors looking to ride out the current trend given their high momentum, enough liquidity, popular options and a broad exposure across industries in the sector.
Technology Select Sector SPDR Fund (XLK - Free Report)
This is the most popular technology ETF, which follows the Technology Select Sector Index and has $40.5 billion in AUM. It charges 12 bps in fees per year from investors and trades in a heavy volume of around 6.7 million shares a day on average. The fund holds about 74 securities in its basket and is widely spread across software, technology hardware storage & peripherals, semiconductors, and IT services that make up for a double-digit allocation each. It has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Time to Take a Bite Out of Apple? ETFs in Focus).
Vanguard Information Technology ETF (VGT - Free Report)
This fund manages $45 billion in its asset base and provides exposure to technology companies that serve the electronics and computer industries or those that manufacture products. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. The ETF has 0.10% in expense ratio while volume is solid at nearly 404,000 shares. It has a Zacks ETF Rank #2 with a Medium risk outlook.
iShares U.S. Technology ETF (IYW - Free Report)
This ETF offers exposure to U.S. electronics, computer software and hardware, and informational technology companies by tracking the Dow Jones US Technology Index. The fund amassed $7.2 billion in its asset base and charges 43 bps in fees and expenses. Volume is good as it exchanges nearly 287,000 shares in hand a day. The fund has a Zacks ETF Rank #2 with a Medium risk outlook (read: Best ETFs to Invest in Big Tech).
iShares Evolved U.S. Technology ETF (IETC - Free Report)
This is an active ETF that employs data science techniques to provide exposure to technology stocks. Software and services takes the largest share at 41.6% while media & entertainment, tech hardware & equipment, and semiconductors & semiconductor equipment round off the next spots with double-digit exposure each. IETC accumulated $103.4 million in its asset base and trades in a light volume of 16,000 shares. It charges 18 bps in annual fees.
iShares Expanded Tech Sector ETF (IGM - Free Report)
With AUM of $3.4 billion, this ETF offers exposure to the technology sector, and technology-related companies in the communication services and consumer discretionary sectors by tracking the S&P North American Technology Sector Index. It holds 309 stocks in its basket with key holdings in interactive media & services, semiconductors, systems software, data processing & outsourced services, and application software. The fund charges 46 bps in annual fees and trades in a moderate average volume of nearly 39,000 shares a day. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
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Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>