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Is the Rout in Tech ETFs Transitory?

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The soaring tech space hit a wall on Mar 19 on reports that Cambridge Analytica, a data firm that was associated with President Trump in the 2016 elections, unlawfully accessed 50 million Facebook (FB) user accounts in 'one of its largest breaches yet'.

Worries over Facebook’s handling of user data mainly triggered a selloff in technology shares. Added to this, large digital companies operating in the European Union, including Alphabet Inc. (AAPL - Free Report) or Twitter Inc. (TWTR - Free Report) , may be subject to a 3% tax on their gross revenues based on the location of their users, according to a draft proposal by the European Commission.

Market Impact

Tech-heavy Nasdaq-100-based fund PowerShares QQQ ETF (QQQ - Free Report) , which was up 5.4% in the last one year, has lost about 2.1% so far this year (as of Mar 19, 2018). Technology Select Sector SPDR ETF (XLK - Free Report) also shed about 2% on the day.

Not only this, the crash in the tech arena spilled over to the other areas of the investment world, dragging SPDR S&P 500 ETF (SPY - Free Report) and SPDR Dow Jones Industrial Average ETF (DIA - Free Report) 1.4% and 1.3%, respectively, on Mar 19, 2018.

Facebook itself declined as much as 6.8% on Monday on four times higher the regular average volume. This marks the largest intraday decline since August 2015 and resulted in about nearly $35 billion of market-cap loss. FB shares lost another 1.5% after hours.

Facebook-heavy ETFs like Global X Social Media ETF (SOCL - Free Report) (down 2%), iShares US Technology ETF IYW (down 2.2%), First Trust Dow Jones Internet ETF (FDN - Free Report) (down 2.3%), ERShares Entrepreneur 30 ETF (ENTR - Free Report) (down 2.7%) and PowerShares NASDAQ Internet ETF (PNQI - Free Report) (down 2.4%) were among the most-hurt (read: Facebook ETFs to Surge on Q4 Earnings Beat).

However, investors should note that this sudden rout in the tech sector seems to be passing and is will longer bear a long-term impact. There are plenty of favorable factors that justify a buy-the-dip-in-tech ETFs.

Why The Sector Could Float Up Soon

The technology sector has been on stronger ground, with full-year 2017 earnings for the sector up 10.7% and expected to be up 22.4% in 2018. Rising enterprise spending, the tailwind of tax cuts and emerging technologies like cloud computing, artificial intelligence and big data are wind beneath the wings of the tech sector (see all technology ETFs here).

Investors should note that tech behemoths hoard huge cash overseas and are poised to benefit the most from Trump's repatriation tax policy. Also, investors can expect higher dividend distribution or share buyback from this move (read: 5 Tech ETFs That Crushed FANG ETFs in 2017).

Plus, a pickup in the global economy is great for a cyclical sector like technology. Such sectors perform better in a rising rate environment that we are witnessing currently in the United States.

So, top-ranked tech ETFs like First Trust Nasdaq Semiconductor ETF FTXL, First Trust NASDAQ-100-Technology Sector Index Fund (QTEC - Free Report) and First Trust Technology AlphaDEX Fund FXL can thus be exercised by investors with a strong stomach for risks (read: 8 Top-Ranked Low P/E Cyclical Sector ETFs to Buy Right Now).

And investors who are still shaky about the Facebook incident may have a look at five tech ETFs that were less-punished on Monday’s trading session. It indicates that these funds are less-ruffled by the FB debacle.

BlueStar TA-BIGITech Israel Technology ETF ITEQ – down 0.2% on Mar 19

PowerShares Dynamic Software Portfolio PSJ – down 0.5%

First Trust Nasdaq Smartphone Index Fund FONE – down 0.6%

SPDR S&P Software & Services ETF (XSW - Free Report) – down 0.9%

KraneShares Emerging Markets Consumer Technology Index ETF KEMQ – down 1.1%

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