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What "Bubble Asset"? Tech ETFs Likely to Gain on Omicron Fear
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The monumental rise of tech stocks in the past two years is known to all. Technology Select Sector SPDR Fund (XLK - Free Report) has gained about 95.4% in the past two years versus 47% gain of the S&P 500. This brought about the bubble fear surrounding tech stocks. Institutional Investor hall of famer Rich Bernstein, who runs Richard Bernstein Advisors, termed tech and cryptocurrencies as bubble assets due to high valuations.
Plus, there are chances that tech stocks, which are high-growth in nature and perform better in a low-rate environment, may underperform if the Fed speeds up the QE tapering to contain sky-high inflation. The tech bunch of growth stocks that won during the pandemic-ridden 2020 on low rates have got a bashing on rising rates occasionally.
Why Tech Can Rally Despite High Valuation & a Likely Hawkish Fed
Still, we believe that tech ETFs have more potential as the Omicron virus fear is taking the globe in its grip. In a new study announced on Monday, researchers from the University of Oxford tested blood samples of people 28 days after their second dose of either the Oxford-AstraZeneca or Pfizer-BioNTech vaccine.
When Omicron was introduced to those samples, scientists reported “a substantial fall” in the neutralizing antibodies that counter COVID-19 compared to the immune responses seen against earlier variants, per a CNBC article. However, the researchers were hopeful that a booster shot would improve immunity against the new, highly transmissible variant.
The above-mentioned fact confirms that Omicron, which is supposed to be less lethal than the Delta variant of COVID-19, is not to be ignored. Even if it may be less fatal, the chances of higher infections are likely and the countries’ healthcare system may collapse again, resulting in lockdowns. Such possibilities will likely rule stay-at-home-friendly sector technology.
Even if we can handle Omicron, mutations of the virus will continue to throw the global economies and markets in a wavering zone occasionally. The central banks will not likely be of much support anymore, while massive fiscal support is also not likely now.
“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. The growing adoption of cloud computing and the ongoing infusion of AI, machine learning and IoT are the other winning areas.
So, don’t steer clear of the tech sector altogether. Rather, bet on the ones that boast strong fundamentals and survive volatility. Against this backdrop, we highlight a few tech ETFs that could be bought right now.
It is one of the largest tech ETFs and is packed with cash-rich behemoths like Apple and Microsoft. XLK has a Zacks Rank #1 (Strong Buy).
Global X Data Center REITs & Digital Infrastructure ETF – P/E 33.35X
The underlying Solactive Data Center REITs & Digital Infrastructure Index seeks to provide exposure to companies that have business operations in the fields of data centers, cellular towers and digital infrastructure hardware.
First Trust NASDAQ Technology Dividend Index Fund (TDIV - Free Report) – P/E 21.39X
The underlying NASDAQ Technology Dividend Index includes up to 100 Technology and Telecommunications companies that pay a regular or common dividend. The expense ratio of the fund is 0.50%.
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 expense ratio of TDV is 0.46%. TDV has a Zacks Rank #1.
Invesco Dynamic Semiconductors ETF – P/E 28.07X
The underlying Dynamic Software Intellidex Index is comprised of stocks of software companies. The Index is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investment timeliness and risk factors. The expense ratio of PSJ is 0.56%.
Defiance Next Gen Connectivity ETF (FIVG - Free Report) – P/E 29.59X
The underlying BlueStar 5G Communications Index is a rules-based index that tracks the performance of a group of US-listed stocks of global companies involved in developing or are otherwise instrumental in the rollout of 5G networks. The expense ratio of FIVG is 0.30%.
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What "Bubble Asset"? Tech ETFs Likely to Gain on Omicron Fear
The monumental rise of tech stocks in the past two years is known to all. Technology Select Sector SPDR Fund (XLK - Free Report) has gained about 95.4% in the past two years versus 47% gain of the S&P 500. This brought about the bubble fear surrounding tech stocks. Institutional Investor hall of famer Rich Bernstein, who runs Richard Bernstein Advisors, termed tech and cryptocurrencies as bubble assets due to high valuations.
Plus, there are chances that tech stocks, which are high-growth in nature and perform better in a low-rate environment, may underperform if the Fed speeds up the QE tapering to contain sky-high inflation. The tech bunch of growth stocks that won during the pandemic-ridden 2020 on low rates have got a bashing on rising rates occasionally.
Why Tech Can Rally Despite High Valuation & a Likely Hawkish Fed
Still, we believe that tech ETFs have more potential as the Omicron virus fear is taking the globe in its grip. In a new study announced on Monday, researchers from the University of Oxford tested blood samples of people 28 days after their second dose of either the Oxford-AstraZeneca or Pfizer-BioNTech vaccine.
When Omicron was introduced to those samples, scientists reported “a substantial fall” in the neutralizing antibodies that counter COVID-19 compared to the immune responses seen against earlier variants, per a CNBC article. However, the researchers were hopeful that a booster shot would improve immunity against the new, highly transmissible variant.
The above-mentioned fact confirms that Omicron, which is supposed to be less lethal than the Delta variant of COVID-19, is not to be ignored. Even if it may be less fatal, the chances of higher infections are likely and the countries’ healthcare system may collapse again, resulting in lockdowns. Such possibilities will likely rule stay-at-home-friendly sector technology.
Even if we can handle Omicron, mutations of the virus will continue to throw the global economies and markets in a wavering zone occasionally. The central banks will not likely be of much support anymore, while massive fiscal support is also not likely now.
“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. The growing adoption of cloud computing and the ongoing infusion of AI, machine learning and IoT are the other winning areas.
So, don’t steer clear of the tech sector altogether. Rather, bet on the ones that boast strong fundamentals and survive volatility. Against this backdrop, we highlight a few tech ETFs that could be bought right now.
ETFs in Focus
Technology Select Sector SPDR Fund (XLK - Free Report) – P/E 27.53X
It is one of the largest tech ETFs and is packed with cash-rich behemoths like Apple and Microsoft. XLK has a Zacks Rank #1 (Strong Buy).
Global X Data Center REITs & Digital Infrastructure ETF – P/E 33.35X
The underlying Solactive Data Center REITs & Digital Infrastructure Index seeks to provide exposure to companies that have business operations in the fields of data centers, cellular towers and digital infrastructure hardware.
First Trust NASDAQ Technology Dividend Index Fund (TDIV - Free Report) – P/E 21.39X
The underlying NASDAQ Technology Dividend Index includes up to 100 Technology and Telecommunications companies that pay a regular or common dividend. The expense ratio of the fund is 0.50%.
ProShares S&P Technology Dividend Aristocrats ETF (TDV - Free Report) – P/E 30.98X
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 expense ratio of TDV is 0.46%. TDV has a Zacks Rank #1.
Invesco Dynamic Semiconductors ETF – P/E 28.07X
The underlying Dynamic Software Intellidex Index is comprised of stocks of software companies. The Index is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investment timeliness and risk factors. The expense ratio of PSJ is 0.56%.
Defiance Next Gen Connectivity ETF (FIVG - Free Report) – P/E 29.59X
The underlying BlueStar 5G Communications Index is a rules-based index that tracks the performance of a group of US-listed stocks of global companies involved in developing or are otherwise instrumental in the rollout of 5G networks. The expense ratio of FIVG is 0.30%.