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The sizzling technology sector is showing no signs of slowdown, pushing the Wall Street to multiple highs amid bouts of political and uncertainty. Notably, this is the best performing sector so far this year.
A massive surge came from five technology giants – Amazon (AMZN - Free Report) , Apple (AAPL - Free Report) , Microsoft (MSFT - Free Report) , Alphabet (GOOGL - Free Report) and Facebook – that collectively account for 40% weight in the index. These stocks are roaring, making fresh highs on several occasions. Additionally, the emergence and extensive adoption of new technology such as cloud computing, big data, Internet of Things, wearables, drones, virtual reality devices, and artificial intelligence are fueling growth in the sector.
Further, most of the tech companies are sitting on a huge cash pile and are in a position to increase payouts to their shareholders. The broader technology sector is expected to post earnings growth of 8.6% this year, lagging energy, construction and basic materials, according the Earnings Trends report (read: 5 ETFs & Stocks to Ride the Tech Mania).
With the global economy gathering momentum, technology companies will continue to outperform and are less susceptible to interest rates or deregulation.
Per the study from Fundstrat, a market strategy and sector research, tech bulls remain intact given that FANG stocks could gain up to 40% in the second half of 2017. Per the study, FANG stocks rose 2.7% higher during the seven-month period (from June to year-end) relative to the first five months since the start of the eight-year bull market. It has happened 70% of the time since 2009.
Moreover, the upside is further confirmed by the Zacks Sector Rank in the top 44% with about 64% of the industries having their ranking in the top 42%. This suggests continued outperformance in the sector for the coming months. Semiconductors and electronics topped the list.
As a result, investors who are bullish on the sector may want to consider a near-term long. Fortunately, with the advent of ETFs, this is quite easy as there are many options to accomplish this task. Below we highlight them and state how each stands out among the rest (read: 5 Best Performing Leveraged ETFs of May).
This fund seeks two times (2x) leveraged exposure to the Dow Jones U.S. Technology Index, charging 95 bps in fees. It has amassed $231.1 million in its asset base and trades in a paltry volume of around 12,000 shares per day on average. ROM has returned about 47.7% since the start of the year.
Investors having a more bullish view and a higher risk appetite may find TECL interesting as the product provides three times (3x) exposure to the daily performance of the Technology Select Sector Index. It has amassed about $286.6 million in its asset base while charges 95 bps in fees per year from investors. Volume is good as it exchanges around 135,000 shares a day on average. The fund has gained 63.5% in the same timeframe.
This fund targets the semiconductor corner of the broader technology sector as it provides two times leveraged exposure to the daily performance of the Dow Jones U.S. Semiconductors Index. It is an unpopular and illiquid choice in the space with AUM of $44.9 million and average daily volume of 6,000 shares. Expense ratio comes in at 0.95%. The fund has added 36.5% so far this year (read: Semiconductor ETFs Leading Tech Sector on Q1 Earnings).
This ETF offers three times leveraged exposure to the PHLX Semiconductor Sector Index, charging investors 95 bps in annual fees. It has amassed about $315.7 million in its asset base while trades in solid volume of more than 317,000 shares a day on average. The fund has surged 75.1% in the same timeframe.
Direxion Daily Cyber Security & IT Bull 2x Shares
HAKK seeks to deliver two times the daily performance of the ISE Cyber Security Index, which measures the performance of domestic and foreign companies that are cyber security infrastructure providers, offer cyber security services, or are companies that are mainly driven by cyber security. The fund has accumulated $2.6 million in its asset base and trades in a meager average volume of around 1,000 shares. It charges investors 80 bps in annual fees and is up 55.2% so far this year (read: Cybersecurity ETFs Set to Rally After a Global Cyberattack).
Bottom Line
As a caveat, investors should note that such products are suitable only for short-term traders as these are rebalanced on a daily basis (see: all Leveraged Equity ETFs here).
However, for ETF investors, who are bullish on the technology sector for the near term, either of the above products could make an interesting choice. Clearly, a near-term long could be intriguing for those with high-risk tolerance, and a belief that “trend is the friend” in this corner of the investing world.
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5 Ways to Play Unstoppable Tech Rally with ETFs
The sizzling technology sector is showing no signs of slowdown, pushing the Wall Street to multiple highs amid bouts of political and uncertainty. Notably, this is the best performing sector so far this year.
A massive surge came from five technology giants – Amazon (AMZN - Free Report) , Apple (AAPL - Free Report) , Microsoft (MSFT - Free Report) , Alphabet (GOOGL - Free Report) and Facebook – that collectively account for 40% weight in the index. These stocks are roaring, making fresh highs on several occasions. Additionally, the emergence and extensive adoption of new technology such as cloud computing, big data, Internet of Things, wearables, drones, virtual reality devices, and artificial intelligence are fueling growth in the sector.
Further, most of the tech companies are sitting on a huge cash pile and are in a position to increase payouts to their shareholders. The broader technology sector is expected to post earnings growth of 8.6% this year, lagging energy, construction and basic materials, according the Earnings Trends report (read: 5 ETFs & Stocks to Ride the Tech Mania).
With the global economy gathering momentum, technology companies will continue to outperform and are less susceptible to interest rates or deregulation.
Per the study from Fundstrat, a market strategy and sector research, tech bulls remain intact given that FANG stocks could gain up to 40% in the second half of 2017. Per the study, FANG stocks rose 2.7% higher during the seven-month period (from June to year-end) relative to the first five months since the start of the eight-year bull market. It has happened 70% of the time since 2009.
Moreover, the upside is further confirmed by the Zacks Sector Rank in the top 44% with about 64% of the industries having their ranking in the top 42%. This suggests continued outperformance in the sector for the coming months. Semiconductors and electronics topped the list.
As a result, investors who are bullish on the sector may want to consider a near-term long. Fortunately, with the advent of ETFs, this is quite easy as there are many options to accomplish this task. Below we highlight them and state how each stands out among the rest (read: 5 Best Performing Leveraged ETFs of May).
ProShares Ultra Technology (ROM - Free Report)
This fund seeks two times (2x) leveraged exposure to the Dow Jones U.S. Technology Index, charging 95 bps in fees. It has amassed $231.1 million in its asset base and trades in a paltry volume of around 12,000 shares per day on average. ROM has returned about 47.7% since the start of the year.
Direxion Daily Technology Bull 3x Shares (TECL - Free Report)
Investors having a more bullish view and a higher risk appetite may find TECL interesting as the product provides three times (3x) exposure to the daily performance of the Technology Select Sector Index. It has amassed about $286.6 million in its asset base while charges 95 bps in fees per year from investors. Volume is good as it exchanges around 135,000 shares a day on average. The fund has gained 63.5% in the same timeframe.
ProShares Ultra Semiconductors ETF (USD - Free Report)
This fund targets the semiconductor corner of the broader technology sector as it provides two times leveraged exposure to the daily performance of the Dow Jones U.S. Semiconductors Index. It is an unpopular and illiquid choice in the space with AUM of $44.9 million and average daily volume of 6,000 shares. Expense ratio comes in at 0.95%. The fund has added 36.5% so far this year (read: Semiconductor ETFs Leading Tech Sector on Q1 Earnings).
Direxion Daily Semiconductor Bull 3x Shares (SOXL - Free Report)
This ETF offers three times leveraged exposure to the PHLX Semiconductor Sector Index, charging investors 95 bps in annual fees. It has amassed about $315.7 million in its asset base while trades in solid volume of more than 317,000 shares a day on average. The fund has surged 75.1% in the same timeframe.
Direxion Daily Cyber Security & IT Bull 2x Shares
HAKK seeks to deliver two times the daily performance of the ISE Cyber Security Index, which measures the performance of domestic and foreign companies that are cyber security infrastructure providers, offer cyber security services, or are companies that are mainly driven by cyber security. The fund has accumulated $2.6 million in its asset base and trades in a meager average volume of around 1,000 shares. It charges investors 80 bps in annual fees and is up 55.2% so far this year (read: Cybersecurity ETFs Set to Rally After a Global Cyberattack).
Bottom Line
As a caveat, investors should note that such products are suitable only for short-term traders as these are rebalanced on a daily basis (see: all Leveraged Equity ETFs here).
However, for ETF investors, who are bullish on the technology sector for the near term, either of the above products could make an interesting choice. Clearly, a near-term long could be intriguing for those with high-risk tolerance, and a belief that “trend is the friend” in this corner of the investing world.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>