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Is There a Bubble in FAANG? Buy These Tech ETFs

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FAANGs are hot. Though this season was a mixed one for the space with Google parent Alphabet (GOOGL - Free Report) , Apple AAPL) and Amazon (AMZN - Free Report) reporting blockbuster earnings and Netflix (NFLX - Free Report) , Facebook (FB - Free Report) as well as Twitter (TWTR - Free Report) falling flat, investors’ appetite for FAANG has hardly waned (read: Twitter Thrashed on Falling MAU: ETFs in Focus).

Are There Overvaluation Concerns?

Many analysts believe that overvaluation concerns are rife in FAANG stocks. Bank of America Merrill Lynch analysts raised warnings ahead of FAANG investing and asked investors to sell the sector “on signs [that] inflows have reached bubble territory.” In fact, Facebook saw “the biggest one-day wipeout in value terms in U.S. stock market history” last month after reporting earnings (read: Facebook Slump Drags Down Tech ETFs: Any Winners?).

Some analysts are warning that even if FAANGs are growing fast, growth rates should invariably slow down once they mature. Plus, Aberdeen Standard Investments believes growth stocks have become almost as pricey as at the height of the dotcom bubble.

According to longtime technology analyst and portfolio manager Paul Meeks, currently the chief investment officer (CIO) at Sloy, Dahl & Holst Inc, ‘the FANG group of mega cap tech stocks is too richly priced.’ Larry McDonald, editor of the Bear Traps Report, sees “potentially 30 percent to 40 percent downside on the FAANGs."

Morgan Stanley’s recommendation for U.S. tech stocks was a sell a month ago and traders have even started paying attention. The research house is wary of “lower earnings revisions in some parts of the sector, continued leadership of defensives, as well as the fact that fewer stocks are now spurring the market gains.”

Tech ETFs Surging Now & Less-Focused on FAANGs

Still, tech stocks are pushing the S&P 500 higher and a large chunk of investors are unfazed by the overvaluation issues. If you are doubtful about FAANG investing and want to keep yourself exposed to the surging tech sector, you may keep a track of the following tech ETFs that have risen the maximum in the past week (as of Aug 7, 2018). Investors should note that the funds mentioned below are not heavily exposed to FAANGs.

Invesco DWA Technology Momentum ETF (PTF - Free Report)

The underlying DWA Technology Technical Leaders Index identifies companies that are showing relative strength and are composed of at least 30 common stocks from a universe of approximately 3,000 common stocks traded on U.S. exchanges. The fund charges 60 bps in fees and has added 6.6% in the past week.

First Trust Technology AlphaDEX Fund (FXL - Free Report)

The underlying StrataQuant Technology Index is a modified equal-dollar weighted index, which selects stocks from the Russell 1000 Index that may generate positive alpha relative to traditional passive style indices through the use of the AlphaDEX screening methodology. The fund charges 63 bps in fees. The fund is up 4.9% past week.

Invesco Dynamic Software ETF (PSJ - Free Report)

The underlying index consists of stocks of software companies. The Index picks companies on the basis of fundamental growth, stock valuation, investment timeliness and risk factors. The fund charges 63 bps in fees. The fund has advanced more than 4.8% in the past week.

SPDR S&P Internet ETF (XWEB - Free Report)

The underlying S&P Internet Select Industry Index represents the Internet segment of the S&P Total Market Index. It charges 35 bps in fees. The fund has popped more than 4.4% in the past week.

SPDR S&P Software & Services ETF (XSW - Free Report)

The fund follows the S&P Software & Services Select Industry Index and it charges 35 bps in fees. The fund has gained about 4.1% in the past week (read: 5 Hot Tech ETFs & Stocks Leading the Market Rally).

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