Tech stocks, particularly FAANGs, were once investors’ darling this year. However, things took a turn, causing a steep slump in Wall Street in the October-November period. Rising rate worries, overvaluation and U.S.-China trade tensions led to the massacre.
Per an article published on Associated Press, technology and Internet-based companies normally see high profit margins. In a rising rate environment, the profitability of such companies will be compromised as they will end up paying higher interests on borrowed money.
As a result, the space entered a bear market in mid-November. Online behemoth Amazon.com (AMZN - Free Report) and Internet television network Netflix (NFLX - Free Report) saw the steepest falls. Amazon probably has seen its worst month since November 2008. Netflix saw its worst-monthly slide since April 2012 (read: FAANGs Slip to Bear Market: What Lies Ahead for ETFs?).
In the past three months (as of Nov 28, 2018), Facebook (FB - Free Report) , Apple (AAPL - Free Report) , Amazon and Netflix have lost about 22.4%, 17.6%, 16.0% and 22.5%, respectively. Even the relatively-stable Alphabet (GOOGL - Free Report) is off 13.7%.
Why Low P/E ETFs is Needed?
As you can understand, FAANGs got a bashing mainly due to loft valuations. Though valuations got corrected to a large extent in the recent selloff, things may turn volatile with rates on the rise and tariff tensions in the cards.
President Trump has cautioned that his administration could slam a 10% tariff on Apple’s smartphones and computers amid escalating trade tensions with China. This is because Apple’s smartphones and other devices are assembled in China.
Though the Fed chair Powell recently commented that interest rates are “just below” neutral, triggering a stock marker rally, some economists argued that the market’s reaction to his speech was slightly misinterpreted.
So, overvaluation issues are likely to bother the space intermittently. But the huge long-term prospects for cutting-edge technology demands tech stocks in investors’ portfolio. So, investors fearing another correction in the near term, might want to opt for low P/E tch funds.
Below we highlight a few tech ETFs that have low P/E ratios in the space. These ETFs have lower P/E than the largest tech ETF Technology Select Sector SPDR Fund (XLK - Free Report) ) (19.51x).
Global X Autonomous & Electric Vehicles ETF (DRIV - Free Report) ) – P/E 12.87x
The fund tracks the movement in shares of companies which are active in the electric vehicles and autonomous driving segments. Industry experts like BlackRock see a tectonic shift to electric vehicles from the combustion engine while Mercedes US CEO admits the increasing drive toward electric vehicles (read: Ride the Speeding Electric Vehicle Industry With These ETFs).
First Trust NASDAQ CEA Smartphone Index Fund (FONE - Free Report) ) – P/E 14.78x
The fund looks to track the performance of companies engaged in the smartphone segment of the telecom and technology sectors (read: Why to Cash in on the Slump & Grab Tech ETFs).
SPDR S&P Semiconductor ETF (XSD - Free Report) ) – P/E 16.26x
The fund offers exposure to semiconductor stocks (read: Apple Woes Trigger Tech Sector Rout: ETFs Under Threat).
Innovator Loup Frontier Tech ETF (LOUP - Free Report) ) – P/E 16.77x
The underlying index tracks the performance of companies that influence the future of technology including artificial intelligence, computer perception, robotics, autonomous vehicles, virtual reality, and mixed/augmented reality (read: Tech Guru on FAANGs, AMD, a New Disruptive ETF & More).
First Trust NASDAQ Technology Dividend Index Fund (TDIV - Free Report) ) – P/E 17.24x
The underlying index includes up to 100 Technology and Telecommunications companies that pay a regular or common dividend. The fund yields 2.47% annually (read: ETFs to Watch on Cisco's Solid Results).
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