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Buy the Dip in 5 Top-Ranked Tech ETFs

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Tech sector has been under pressure in recent weeks with the tech-laden Nasdaq composite Index losing about 3.5% past month. The reason for this slowdown in the tech sector can be attributed to the rise in treasury yields. The benchmark U.S. Treasury yield jumped to 1.61% on Oct 8 versus 1.48% recorded on Oct 1 due to Fed taper talks.

Growth sectors like tech space underperform in a rising rate environment as it decreases the relative value of future earnings, making the segment overvalued. Tech companies also face hurdles in funding their growth and buying back stocks (one of the attractions of the big tech stocks) due to higher rates.

Invesco’s Kristina Hooper, however, says that the tech weakness is a major buying opportunity for investors, as quoted on CNBC. “Technology over the longer term is going to benefit from increased corporate spending,” the firm’s chief global market strategist told CNBC’s “Trading Nation” on Friday.

Hooper believes the current weakness is fleeting and expects areas from software to cybersecurity to see considerable long-term benefits. However, Hooper indicated that one should hold tech stocks for three-to-five years to gain the maximum profit out of it.

In July, CNBC’s Jim Cramer said that big tech stocks are lucrative bets amid rising inflation and chances of higher interest rates. “Hyper-growth tech stocks are actually what works best during a slowdown,” the “Mad Money” host said, as quoted on the CNBC article.

Inflation has been on an uphill ride this year thanks to the low-base effects from 2020 and because economic recovery picked up, business restrictions were relaxed and demand jumped amid widespread vaccination and fiscal stimulus.

“New normal” trends like work-and-learn-from-home and online shopping, increasing digital payments and growing video streaming are sure to stay here for long. Like Hooper, we also believe that the growing adoption of cloud computing, and the ongoing infusion of AI, machine learning and IoT are the other winning areas.

So, don’t shy away from the tech sector altogether with rates rising. We highlight a few top-ranked tech ETFs that are down past month and hold high potential.

ETFs in Focus

First Trust NASDAQ Semiconductor ETF (FTXL - Free Report) – Down 1.29% in the Past One Month

The underlying Nasdaq US Smart Semiconductor Index is a modified factor weighted index, designed to provide exposure to US companies within the semiconductor industry. The fund has a Zacks Rank #1 (Strong Buy). The product charges 60 bps in fees.

ProShares S&P Technology Dividend Aristocrats ETF (TDV - Free Report) – Down 1.77% in the Past One Month

The underlying S&P Technology Dividend Aristocrats Index targets companies from information technology, internet and direct marketing retail, interactive home entertainment, and interactive media and services segments of the economy. The fund has a Zacks Rank #1. The fund charges 46 bps in fees.

iShares North American TechMultimedia Networking ETF (IGN - Free Report) – Down 2.00% in the Past One Month

The underlying S&P North American Technology-Multimedia Networking Index measures the performance of U.S. traded stocks of communication equipment companies in the United States and Canada. The fund charges 43 bps in fees. The fund has a Zacks Rank #2.

SPDR S&P Semiconductor ETF (XSD - Free Report) – Down 2.31% in the Past One Month

The underlying S&P Semiconductor Select Industry Index represents the Semiconductor sub-industry portion of the S&P Total Markets Index. The S&P TMI tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges. The Semiconductor Index is a modified equal weight index. The Zacks Rank #1 fund charges 35 bps in fees.

First Trust Cloud Computing ETF (SKYY - Free Report) Down 2.59% in the Past One Month

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 Zacks Rank #2 fund charges 60 bps in fees.