The hot and soaring technology sector collapsed out of the blue in Friday’s trading session. This is especially true as the five biggest technology stocks – Amazon (AMZN - Free Report) , Apple (AAPL - Free Report) , Microsoft (MSFT - Free Report) , Alphabet (GOOGL - Free Report) and Facebook (FB - Free Report) – lost more than $97.5 billion in market value on overvaluation concerns. These stocks have been the main drivers of the global stock rally this year. Semiconductor stocks also have been victims of this rout (read: Tech Face Off: Amazon Versus Alphabet ETFs).
In addition, one of the leading investment banks Goldman Sachs warned that stock prices of these tech companies have risen rapidly, triggering the sell-off. The malaise has spread across the globe through Asia and Europe to start the week. Added to the woes is the second rating cut for Apple by Mizuho Securities in a week. Mizuho Securities' downgraded the iPhone maker to Neutral from Buy on Sunday that has resulted in another rough start to trading for the sector.
Notably, the tech heavy Nasdaq Composite index dropped 0.9% in early trade today, signaling more pain. A strong dollar, growing geopolitics and threats of political instability will hurt worldwide demand and information technology spending weighing on revenues and profitability of the big tech companies though the industry fundamentals remains encouraging (read: 5 Ways to Play Unstoppable Tech Rally with ETFs).
With this, almost all the tech ETFs saw terrible performances on Friday with large-cap funds leading the way. However, a few tech ETFs could standout in the current turmoil thanks to its unique/smart approach or higher allocation to small caps. In addition, these ETFs have not gained as much as the large-cap tech funds.
As a result, we have highlighted those tech ETFs that have less exposure to big players and could be excellent bets on bullish industry fundamentals.
PowerShares S&P SmallCap Information Technology Portfolio (PSCT - Free Report)
This fund offers exposure to the small cap segment of the technology sector by tracking the S&P SmallCap 600 Capped Information Technology Index. It has managed $548.7 million in its asset base and trades in moderate average daily volume of about 65,000 shares. The ETF charges 29 bps in fees per year from investors. Holding 87 securities in its basket, the product is well spread across securities with each holding more than 4% share. From an industry look, about one-fourth of the portfolio is allocated toward electronic equipment, followed by semiconductors (25.1%), software (15.5%), communication equipment (11.5%) and IT services (11.3%). The product lost 2.4% in Friday’s trading session. It has gained 8.6% so far this year and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook.
iShares North American Tech-Multimedia Networking ETF (IGN - Free Report)
This ETF provides concentrated exposure to domestic multimedia networking securities by tracking the S&P North American Technology-Multimedia Networking Index. Holding 24 securities in its basket, the fund has moderate concentration with each holding not more than 9.7% of assets. Mid caps account for 61% of the portfolio while small caps take the remainder with just 8% going to large caps. The product has accumulated $85.1 million in its asset base while sees a lower volume of around 28,000 shares a day. Expense ratio comes in at 0.48%. The fund shed 2.4% on the day but is up 6.7% in the year-to-date timeframe. It has a Zacks ETF Rank of 3 with a High risk outlook.
PowerShares Dynamic Networking Portfolio (PXQ - Free Report)
This product targets the networking segment of the broad U.S. technology sector by tracking the Dynamic Networking Intellidex Index. Holding 30 securities in its basket, the fund is well spread across each component as each security accounts for no more than 5.21% share. From a market cap look, about 42% of the portfolio is focused on small cap stocks while the rest is evenly split between mid and large caps. The fund is unpopular and illiquid in the broad tech space with AUM of $27.6 million and average daily volume of about 5,000 shares. It charges 63 bps in annual fees and shed 3.4% in Friday’s session. The fund is up 9.8% in the year-to-date timeframe and has a Zacks ETF Rank of 2 or ‘Buy’ rating with a High risk outlook (read: Cisco Sinks on Weak Guidance: ETFs to Watch).
Guggenheim S&P Equal Weight Technology ETF (RYT - Free Report)
This ETF offers equal weight exposure to 69 tech firms by tracking the S&P 500 Equal Weight Index Information Technology. Each firms accounts for less than 2.1% share in the basket. IT services, semiconductor and software are the top three sectors with double-digit exposure each. RYT has amassed $1.4 billion in its asset base while trades in moderate volume of around 76,000 shares. It charges 40 bps in fees per year and lost 2.5% on the day. The product has gained 17% so far this year and has a Zacks Rank of 2 with a Medium risk outlook.
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