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Tech ETFs to Lead Again On Power-Packed Earnings

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The technology sector was battling a number of headwinds arising from a slew of negative news from some of the key companies in the space. But the tide seems to be turning around following strong earnings, leading to an end to weeks of decline for the sector’s stocks (read: Tech ETFs to Buy After Massive Selloff).

Total earnings from 81.5% of the sector’s market cap in the S&P 500 index are up 29.6% on 12.1% higher revenues, with a record 92.1% companies beating earnings estimates. Notably, the S&P 500 Information Technology index gained 3.3% in the past month.

Power-Packed Earnings

Earnings from some of the biggest names in the space have been encouraging. The market darlings FAAMNG group, namely Facebook , Apple (AAPL - Free Report) , Amazon.com (AMZN - Free Report) , Microsoft (MSFT - Free Report) , Netflix (NFLX - Free Report) and Alphabet (GOOGL - Free Report) , which slipped into deep correction territory in late March, strongly restored positive sentiments with better-than-expected results and optimism for future growth.

Facebook shrugged off worries over the data-privacy scandal involving Cambridge Analytica that broke in mid-March, while Apple eased weak iPhone demand and greeted investors with a big capital return program. The fast-growing cloud computing business powered both Amazon and Microsoft’s growth story. Notably, Microsoft seems on track to record its strongest annual revenue growth for more than a decade. Netflix came up with blockbuster results while Alphabet’s numbers were also inspiring (read: ETFs With Heavy Microsoft Exposure to Fly Post Q3 Results).

Apart from these, semiconductor firms like Advanced Micro Devices (AMD - Free Report) and Intel (INTC - Free Report) and payment companies including Visa (V) and PayPal (PYPL - Free Report) also fueled the rally and instilled confidence in the sector.

Other Factors

The twin tailwinds of Trump’s tax reform and a rising interest rate scenario are fueling growth. This is because tech titans hoard huge cash overseas and are poised to benefit the most from reduced tax rates. These companies are sitting on a huge cash pile and are in a position to increase payouts to their shareholders. Additionally, the sector’s cyclical nature will allow it to perform well in a maturing economic cycle (see: all the Technology ETFs here).

Further, the emergence of cutting-edge technology such as cloud computing, big data, Internet of Things, wearables, VR headsets, drones, virtual reality, and artificial intelligence as well as strong corporate earnings are acting as the key catalysts.

Given the recovering trend, most of the tech ETFs are on the rise following the power-packed earnings. Below, we have presented some funds that are leading from a one-month look and will continue their outperformance given their solid Zacks ETF Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

First Trust Cloud Computing ETF (SKYY - Free Report) – Up 4.7%

This fund provides exposure to 30 cloud computing securities by tracking the ISE Cloud Computing Index. It has amassed $1.4 billion in its asset base and sees a good volume of about 267,000 shares a day. It charges 60 bps in annual fees and a Zacks ETF Rank #3 (read: ETFs to Buy on Netflix's Blockbuster Q1 Earnings).

First Trust Dow Jones Internet Index Fund (FDN - Free Report) – Up 4.5%

This fund targets the Internet corner of the broad technology space with AUM of $7.2 billion and average daily volume of around 549,000 shares. The fund follows the Dow Jones Internet Composite Index and holds 42 stocks in its basket. Expense ratio comes in at 0.53%. The fund has a Zacks ETF Rank #2 (read: eBay vs. PayPal ETFs: The Story After Q1 Earnings).

PowerShares Dynamic Software Portfolio PSJ – Up 3%

With AUM of $156.7 million, this product target software corner of the broad technology space and follows the Dynamic Software Intellidex Index. It holds 29 securities in its basket and trades in average daily volume of 12,000 shares. Expense ratio comes in at 0.63%. The fund has a Zacks ETF Rank #2.

SPDR S&P Technology Hardware ETF – Up 3%

This fund targets the hardware segment of the technology market by tracking the S&P Technology Hardware Select Industry Index. It holds 42 stocks in its basket and charges 35 bps in annual fees. The ETF has accumulated $3.5 million in its asset base and trades in paltry volume of under 1,000 shares. It has a Zacks ETF Rank #1 (read: 5 Tech ETFs in Green Despite One-Month Turmoil).

iShares North American Tech-Software ETF IGV – Up 2.7%

This ETF provides exposure to the software segment of the broader U.S. technology space by tracking the S&P North American Technology-Software Index. Holding a basket of 59 securities, the fund charges 48 bps in annual fees and has AUM of $1.5 billion. Volume is good as it exchanges nearly 185,000 shares a day. IGV has a Zacks ETF Rank #2.

iShares North American Tech ETF IGM – Up 2.6%

This ETF tracks the S&P North American Technology Sector Index, giving investors exposure to 290 electronics, computer software and hardware, and informational technology companies. The fund has AUM of $1.4 billion and charges 48 bps in annual fees. It trades in a moderate volume of nearly 49,000 shares in hand a day and has a Zacks ETF Rank #2.

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