Donald Trump’s win in the presidential election may have led to a rally in U.S. stocks, pushing the country’s key equity gauges to all-time highs, but Nasdaq 100 is still fraught with worries. This is because the index is loaded with tech stocks which are the most vulnerable following Trump’s victory.
Trump is expected to take stricter steps on immigration and outsourcing – the two pillars that the tech sector stands on. Several technology companies like Apple (AAPL - Free Report) outsource their manufacturing activities to low-cost countries like China and Taiwan. Deutsche Bank analyst even cautioned investors that Apple may face sever threats from Donald Trump's policies (read: Tech ETFs to Watch Post Apple's Mixed Bag Q4).
Speculation is rife that 35% tax will be levied on products manufactured outside the U.S. The technology sector is thus likely to come under pressure. In the last 10 days (as of November 23, 2016), the S&P 500-based (SPY - Free Report) and the Dow Jones Industrial Average-based (DIA - Free Report) advanced about 3% and 4% while QQQ fell short of the duo with just 1.5% gains (read: 6 Stocks & ETFs to Avoid on Trump's Win).
But hidden gems are still out there in the tech space. Investors should note that all that the negative vibes surrounding tech stocks are based merely on speculation. Even if Trump takes a harsher stance, there are plenty of factors to boost this sector. After all, the U.S. economy is on the mend and the global economy too is not in that bad a shape (read: Tech ETFs Rebound: Can the Surge Continue?)
The cyclical nature of the sector, a whirlpool of IPOs, rising demand for newer technologies like Internet of Things (IoT) and still-decent valuation should offer the sector the necessary guard against Trump’s likely adverse policies. Investors also should note that the earnings picture of the technology sector has been reassuring lately.
There are some analysts who even think that “Trump is most likely to pursue in the areas of regulation, taxes, and trade could favor tech companies.” Trump’s emphasis on “smarter trade deals and practices” may in fact boost tech stocks.
What Does Zacks Rank Say About Tech ETFs?
Agreed the mood around is tensed and the Zacks methodology has downgraded several tech ETFs. But what is striking even after the downgrade is that several tech ETFs are Buy-rated (meaning those are dropped to #2 (Buy) from #1 (Strong Buy). Below we highlight a list of Tech ETFs that have undergone this mechanism.
Technology Select Sector SPDR ETF (XLK - Free Report)
Vanguard Information Technology ETF (VGT - Free Report)
iShares North American Tech (IGM - Free Report)
iShares PHLX Semiconductor (SOXX - Free Report)
iShares North American Tech-Multimedia Networking ETF IGN
Guggenheim S&P 500 Equal Weight Technology ETF (RYT - Free Report)
SPDR S&P Semiconductor ETF (XSD - Free Report)
However, there are a few ETFs which were upgraded from Hold to Buy as well and thus deserve more attention. Below are two of them:
Fidelity MSCI Information Tech ETF (FTEC - Free Report)
JHancock Multifactor Technology ETF (JHMT - Free Report)
Drone Technology to Get a Boost?
The U.S. military deploys distantly piloted drones to bomb targets in areas including Afghanistan, Iraq, Pakistan and Syria. With Trump expected to be more affluent on U.S. military, this drone technology will likely be vogue in the upcoming days benefiting yet another tech fund Drone Economy Strategy ETF (IFLY - Free Report) (see all technology ETFs here).
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