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The technology sector is back in the groove and dominating the stock market rally once again since the start of November. The renewed confidence is driven by hopes that the Fed’s aggressive interest rate hiking campaign might be nearing an end. Additionally, hedge funds' upsurge in big tech investments added to the strength.
The rally has pushed many ETFs to a new one-year high. We have highlighted five of them that have been leading the space this year as well. These are VanEck Vectors Semiconductor ETF (SMH - Free Report) , SPDR NYSE Technology ETF (XNTK - Free Report) , iShares U.S. Technology ETF (IYW - Free Report) , Pacer Data and Digital Revolution ETF (TRFK - Free Report) and iShares Expanded Tech Sector ETF (IGM - Free Report) . Each of these funds has a Zacks ETF Rank #1 (Strong Buy) or #2 (Buy), suggesting their continued outperformance.
Rate Hike Fears Ease
The combination of latest data strengthened the idea that the Fed is done with rate hikes. Job growth slowed down in October, and the unemployment rate ticked higher as auto strikes weighed on the labor market last month. Inflation broadly slowed in October. The so-called core inflation, which strips out volatile components such as food and energy prices, rose 4% year over year — the slowest annual pace since September 2021 — according to the latest data from the Bureau of Labor Statistics (read: 5 ETFs Set to Gain as Inflation Cools Down).
Meanwhile, retail sales also dropped for the first time in seven months in October, further bolstering expectations that the Fed is done hiking interest rates.
According to the CME FedWatch tool, the odds of a rate hike at the Fed’s December meeting dropped from 14% to 0%. As the tech sector relies on borrowing for superior growth, it is cheaper to borrow more money for initiatives when interest rates are low.
Upsurge in Investments
Per the new regulatory filing, several hedge funds expanded their bets on big technology stocks, including Amazon (AMZN - Free Report) , Microsoft (MSFT - Free Report) and Meta Platforms (META - Free Report) . This shift comes despite some stumbles these companies experienced in the third quarter of the year.
Tiger Global Management has raised its investment in Nvidia (NVDA - Free Report) by a striking 77% and Alphabet GOOGL by 40%. Additionally, it raised its stakes in Meta by 4%, Microsoft by 8%, and Amazon by 6.5%. Bill Ackman's Pershing Square Capital Management nearly doubled its stake in Alphabet Inc. Class A shares, while Daniel Loeb's Third Point created new positions in Meta, acquiring 1.1 million shares. Coatue Management increased its Meta position by 9%. Both Light Street Capital and Ratan Capital Management significantly boosted their Amazon holdings, with Light Street upping its position by 5% and Ratan by a massive 72%.
Solid Sector Fundamentals
The expansion of artificial intelligence (AI) applications holds the promise of ushering in fresh opportunities for growth within the sector. The global digital shift has accelerated e-commerce for everything, ranging from remote working to entertainment and shopping, thereby bolstering strength in the sector. The rapid adoption of cloud computing, big data, the Internet of Things, wearables, VR headsets, drones, virtual reality, machine learning, digital communication, blockchain and 5G technology will continue to fuel a rally (read: 5 Sector ETFs at the Forefront of the Market Rally Last Week).
The tech titans have strong balance sheets, durable revenue streams and robust profit margins, making them attractive investments. They are better positioned to withstand a possible economic downturn and have demonstrated improved cost discipline. Moreover, the technology sector has a solid Zacks Sector Rank, being in the top 38%, which suggests continued outperformance in the coming months.
Let’s dig into the details of the abovementioned ETFs:
VanEck Vectors Semiconductor ETF offers exposure to the companies involved in semiconductor production and equipment. SMH follows the MVIS US Listed Semiconductor 25 Index, which measures the overall performance of companies involved in semiconductor production and equipment. VanEck Vectors Semiconductor ETF holds 26 stocks in its basket.
VanEck Vectors Semiconductor ETF has managed assets worth $10.8 billion and charges 35 bps in annual fees and expenses. SMH is heavily traded, with a volume of 8.8 million shares per day (read: Inside the Recent Surge in Semiconductor ETFs).
SPDR NYSE Technology ETF provides exposure to 35 leading U.S.-listed technology-related companies by tracking the NYSE Technology Index. Semiconductors take the largest share at 26.1%, while systems software, application software, interactive media & services and broadline retail round off the next four spots.
SPDR NYSE Technology ETF has amassed $570.1 million and charges 35 bps in annual fees. It trades in an average daily volume of 11,000 shares.
iShares U.S. Technology ETF (IYW - Free Report) – Up 55.2%
iShares Dow Jones US Technology ETF tracks the Russell 1000 Technology RIC 22.5/45 Capped Index, giving investors exposure to 133 U.S. electronics, computer software and hardware, and informational technology companies. Software & services, semiconductors & semiconductor equipment, tech hardware & equipment, and media & entertainment are the top four sectors with double-digit exposure each.
iShares Dow Jones US Technology ETF has AUM of $12.6 billion and charges 40 bps in fees and expenses. Volume is good as it exchanges 732,000 shares a day.
Pacer Data and Digital Revolution ETF (TRFK - Free Report) – Up 50.3%
Pacer Data and Digital Revolution ETF aims to offer investors exposure to the globally listed stocks and depositary receipts of data and digital revolution companies. It follows the Pacer Data Transmission and Communication Revolution Index, holding 80 stocks in its basket (read: 5 ETFs to Tap Nvidia's Historic Surge).
Pacer Data and Digital Revolution ETF has accumulated $5.2 million in its asset base. It has an expense ratio of 0.60%. TRFK trades in a meager volume of about 1,000 shares per day on average.
iShares Expanded Tech Sector ETF offers broad exposure to the technology sector and technology-related companies in the communication services and consumer discretionary sectors. It tracks the S&P North American Expanded Technology Sector Index, holding 277 stocks in its basket. From a sector look, semiconductors, interactive media & services, and systems software make up for double-digit exposure each.
iShares Expanded Tech Sector ETF has AUM of $3.4 billion and charges 41 bps in annual fees. It trades in a moderate volume of nearly 28,000 shares a day on average.
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Tech Turns Hot, ETFs Touch New 52-Week Highs
The technology sector is back in the groove and dominating the stock market rally once again since the start of November. The renewed confidence is driven by hopes that the Fed’s aggressive interest rate hiking campaign might be nearing an end. Additionally, hedge funds' upsurge in big tech investments added to the strength.
The rally has pushed many ETFs to a new one-year high. We have highlighted five of them that have been leading the space this year as well. These are VanEck Vectors Semiconductor ETF (SMH - Free Report) , SPDR NYSE Technology ETF (XNTK - Free Report) , iShares U.S. Technology ETF (IYW - Free Report) , Pacer Data and Digital Revolution ETF (TRFK - Free Report) and iShares Expanded Tech Sector ETF (IGM - Free Report) . Each of these funds has a Zacks ETF Rank #1 (Strong Buy) or #2 (Buy), suggesting their continued outperformance.
Rate Hike Fears Ease
The combination of latest data strengthened the idea that the Fed is done with rate hikes. Job growth slowed down in October, and the unemployment rate ticked higher as auto strikes weighed on the labor market last month. Inflation broadly slowed in October. The so-called core inflation, which strips out volatile components such as food and energy prices, rose 4% year over year — the slowest annual pace since September 2021 — according to the latest data from the Bureau of Labor Statistics (read: 5 ETFs Set to Gain as Inflation Cools Down).
Meanwhile, retail sales also dropped for the first time in seven months in October, further bolstering expectations that the Fed is done hiking interest rates.
According to the CME FedWatch tool, the odds of a rate hike at the Fed’s December meeting dropped from 14% to 0%. As the tech sector relies on borrowing for superior growth, it is cheaper to borrow more money for initiatives when interest rates are low.
Upsurge in Investments
Per the new regulatory filing, several hedge funds expanded their bets on big technology stocks, including Amazon (AMZN - Free Report) , Microsoft (MSFT - Free Report) and Meta Platforms (META - Free Report) . This shift comes despite some stumbles these companies experienced in the third quarter of the year.
Tiger Global Management has raised its investment in Nvidia (NVDA - Free Report) by a striking 77% and Alphabet GOOGL by 40%. Additionally, it raised its stakes in Meta by 4%, Microsoft by 8%, and Amazon by 6.5%. Bill Ackman's Pershing Square Capital Management nearly doubled its stake in Alphabet Inc. Class A shares, while Daniel Loeb's Third Point created new positions in Meta, acquiring 1.1 million shares. Coatue Management increased its Meta position by 9%. Both Light Street Capital and Ratan Capital Management significantly boosted their Amazon holdings, with Light Street upping its position by 5% and Ratan by a massive 72%.
Solid Sector Fundamentals
The expansion of artificial intelligence (AI) applications holds the promise of ushering in fresh opportunities for growth within the sector. The global digital shift has accelerated e-commerce for everything, ranging from remote working to entertainment and shopping, thereby bolstering strength in the sector. The rapid adoption of cloud computing, big data, the Internet of Things, wearables, VR headsets, drones, virtual reality, machine learning, digital communication, blockchain and 5G technology will continue to fuel a rally (read: 5 Sector ETFs at the Forefront of the Market Rally Last Week).
The tech titans have strong balance sheets, durable revenue streams and robust profit margins, making them attractive investments. They are better positioned to withstand a possible economic downturn and have demonstrated improved cost discipline. Moreover, the technology sector has a solid Zacks Sector Rank, being in the top 38%, which suggests continued outperformance in the coming months.
Let’s dig into the details of the abovementioned ETFs:
VanEck Vectors Semiconductor ETF (SMH - Free Report) – Up 58.8%
VanEck Vectors Semiconductor ETF offers exposure to the companies involved in semiconductor production and equipment. SMH follows the MVIS US Listed Semiconductor 25 Index, which measures the overall performance of companies involved in semiconductor production and equipment. VanEck Vectors Semiconductor ETF holds 26 stocks in its basket.
VanEck Vectors Semiconductor ETF has managed assets worth $10.8 billion and charges 35 bps in annual fees and expenses. SMH is heavily traded, with a volume of 8.8 million shares per day (read: Inside the Recent Surge in Semiconductor ETFs).
SPDR NYSE Technology ETF (XNTK - Free Report) – Up 55.7%
SPDR NYSE Technology ETF provides exposure to 35 leading U.S.-listed technology-related companies by tracking the NYSE Technology Index. Semiconductors take the largest share at 26.1%, while systems software, application software, interactive media & services and broadline retail round off the next four spots.
SPDR NYSE Technology ETF has amassed $570.1 million and charges 35 bps in annual fees. It trades in an average daily volume of 11,000 shares.
iShares U.S. Technology ETF (IYW - Free Report) – Up 55.2%
iShares Dow Jones US Technology ETF tracks the Russell 1000 Technology RIC 22.5/45 Capped Index, giving investors exposure to 133 U.S. electronics, computer software and hardware, and informational technology companies. Software & services, semiconductors & semiconductor equipment, tech hardware & equipment, and media & entertainment are the top four sectors with double-digit exposure each.
iShares Dow Jones US Technology ETF has AUM of $12.6 billion and charges 40 bps in fees and expenses. Volume is good as it exchanges 732,000 shares a day.
Pacer Data and Digital Revolution ETF (TRFK - Free Report) – Up 50.3%
Pacer Data and Digital Revolution ETF aims to offer investors exposure to the globally listed stocks and depositary receipts of data and digital revolution companies. It follows the Pacer Data Transmission and Communication Revolution Index, holding 80 stocks in its basket (read: 5 ETFs to Tap Nvidia's Historic Surge).
Pacer Data and Digital Revolution ETF has accumulated $5.2 million in its asset base. It has an expense ratio of 0.60%. TRFK trades in a meager volume of about 1,000 shares per day on average.
iShares Expanded Tech Sector ETF (IGM - Free Report)
iShares Expanded Tech Sector ETF offers broad exposure to the technology sector and technology-related companies in the communication services and consumer discretionary sectors. It tracks the S&P North American Expanded Technology Sector Index, holding 277 stocks in its basket. From a sector look, semiconductors, interactive media & services, and systems software make up for double-digit exposure each.
iShares Expanded Tech Sector ETF has AUM of $3.4 billion and charges 41 bps in annual fees. It trades in a moderate volume of nearly 28,000 shares a day on average.