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Be Choosy In Tech Investing: ETFs to Buy/Sell

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Wall Street has been on choppy ride since the start of 2022 due to rising rate worries. Higher inflationary expectations emanating from supply chain disruptions as well as higher crude prices should make Fed members comfortable with several rate hikes in the coming days with the first one since 2018 likely to hit the market in March.

The Nasdaq, heavy on technology and growth stocks, has been extremely hit due to this trend. The index had already entered the correction territory in January. The Nasdaq Composite has lost 7.8% this year as investors continue to walk out of the high-growth tech shares as interest rates surge to start the new year (read: Nasdaq ETFs to Log Worst Month Since 2008? 5 Stocks Up 20%+).

Heavy reliance on the tech sector led to this lackluster performance. No wonder, Technology Select Sector SPDR Fund (XLK - Free Report) has lost about 8.6% in the year-to-date frame. But this does not mean that the entire sector is in the lackluster shape. In fact, the latest dip can be used to buy some hidden gems.

Against this backdrop, below we highlight a few tech ETF spaces that should bought or sold right now.

Winners

Semiconductor

Per the Semiconductor Industry Association, global sales of semiconductors totaled $144.8 billion during the third quarter of 2021, marked an increase of 27.6% over the third quarter of 2020 and 7.4% from the second quarter of 2021. Although the industry is grappling with a chip crunch, the ever-increasing demand is a plus for the space.

“Semiconductor shipments reached all-time highs in the third quarter of 2021, demonstrating both the ongoing high global demand for chips and the industry’s extraordinary efforts to ramp up production to meet that demand,” said John Neuffer, SIA president and CEO. The latest upbeat earnings from Nvidia (NVDA - Free Report) and Advanced Micro Devices (AMD - Free Report) also points to the industry’s wellbeing.

Dynamic Semiconductors Invesco ETF (PSI - Free Report) and Vaneck Semiconductor ETF (SMH - Free Report) are two choices out of many that could be loaded up in one’s portfolio with a long-term view.

Cybersecurity

Data breaches are rife amid the emerging work-from-home trend. Years’ worth of digital transformation has taken place in the peak of pandemic. Digital uses of the financial transaction are on the rise. Hence, as estimated by the research firm Gartner, global cybersecurity spending jumped 13% in 2021 to $172 billion versus 8% growth in 2020.

In both 2022 and 2023, Gartner predicts 11% growth in cybersecurity spending, per an article published on investors.com. First Trust NASDAQ Cybersecurity ETF (CIBR - Free Report) , iShares Cybersecurity & Tech ETF (IHAK - Free Report) , Global X Cybersecurity ETF (BUG) and WisdomTree Cybersecurity Fund (WCBR) could be tapped for gains.

Apple-Microsoft-Heavy ETFs

Betting big on big tech seems to be a good idea. But here also, one needs to be vigilant and it is better go for Apple and Microsoft-heavy ETFs given their latest earnings strength. Apple currently has a Zacks Rank #1 (Strong Buy) while Microsoft has a Zacks Rank #3 (Hold). Technology Select Sector SPDR Fund XLK), Vanguard Information Technology ETF (VGT - Free Report) and Fidelity MSCI Information Technology Index ETF (FTEC) fit the bill in this regard.

Video Gaming

The video gaming industry continues to gain amid the health crisis as consumers spend generously, hitting record-breaking highs in 2021. Recently-released data from The NPD Group emphasizes that the video game industry witnessed robust sales in 2021, with people spending $60.4 billion in all, reflecting 8% growth year over year. Thanks to the rising demand, the space has seen a big-ticket acquisition lately as Microsoft (MSFT) has agreed to buy gaming giant Activision Blizzard (ATVI) for $68.7 billion. Wedbush ETFMG Video Game Tech ETF (GAMR - Free Report) is an apt bet for this segment (read: Grab These Video Gaming ETFs to Gain From Soaring Sales Trend).

Losers

Social Media

Global X Social Media ETF (SOCL - Free Report) lost about 6% post Meta (FB) earnings. Facebook lost daily users for the first time in its history and shares sank more than 20%. Taking cues from its struggling social media business, Twitter (TWTR) lost 4.2% on Feb 2 and 6.6% before market on Feb 3. Hence, we can expect a rough ride for SOCL in the near term.

Internet

Internet ETF Invesco NASDAQ Internet ETF (PNQI - Free Report) consists of some companies that have seen downbeat earnings this season. Meta, Netflix and PayPal are some of them. So, PNQI may see choppy trades ahead.

Software

Many of the Invesco Dynamic Software ETF (PSJ - Free Report) ’scomponents – Roku, Datadog and Snap – were winners in the pandemic. With economic reopening taking place, we do not see the winning momentum to continue for the space. Meanwhile, the Meta episode hit the other industry player Snap hard on Feb 2. Most of these companies are likely to face slower user growth.