Tech stocks were investors’ favorites this year. A dovish Fed and chances of reconciliation between the United States and China on the trade front led to a solid rally in the first quarter. Though this tariff-sensitive space had suffered at the start of May on Trump’s decision to hike tariffs on $200 billion worth of Chinese goods and China’s retaliation, the latest softer rhetoric by Trump about the still-alive chances of a trade deal caused a rebound in the space.
Latest pool of upbeat earnings contributed to the recent gains in the sector. Per the Earnings Trends issued on May 15, 79.1% of the tech companies in the S&P 500 cohort has released earnings results so far this season, of which 81.1% beat earnings estimates while 69.8% surpassed the revenue mark.
The sector has benefited a great deal from the tax reform last year and invested those savings in buybacks and dividend distributions. But that benefit is receding this year. Notably, Information Technology buybacks dropped 25.5% in fourth-quarter 2018 from the third-quarter level.
But the emergence of cutting-edge and disruptive technology such as cloud, Internet of Things, autonomous cars, gaming, wearables, VR headsets, drones, virtual reality devices, artificial intelligence and other advanced information technologies is a major tailwind (see: all the Technology ETFs here).
Against this backdrop, we highlight a few tech ETFs that have returned around 20% this year and still have a low P/E ratio in the pack. This entails more chances of a rally in these ETFs, if there is no further escalation in trade tensions. These funds either come from disruptive technologies or semiconductor sectors.
Invesco Dynamic Semiconductors ETF (PSI - Free Report) ) — P/E 12.27x, Up 25.8% YTD
The underlying index comprises stocks of semiconductor companies. The Index looks to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investment timeliness and risk factors (read: Semiconductor ETFs to Watch Post Intel's Q1 Earnings).
Defiance Future Tech ETF ) — P/E 9.95x, Up 21.7% YTD
The fund consists of a modified equal-weighted portfolio of the stock of companies whose products or services are predominantly tied to the development or commercialization of augmented or virtual reality technologies. The fund charges 40 bps in fees (read: Defiance Launches Disruptive Tech ETF).
Invesco S&P 500 Equal Weight Technology ETF (RYT - Free Report) ) – P/E 13.99x, Up 21.2% YTD
The fund puts about 30% weight in IT Services followed by Semiconductors (25.1%), Software (18.7%) and technology Hardware (10.2%). The fund charges 40 bps in fees.
Innovator Loup Frontier Tech ETF (LOUP - Free Report) ) – P/E 10.86x, Up 20.6% YTD
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. The fund charges 70 bps in fees.
Amplify Transformational Data Sharing ETF (BLOK - Free Report) ) – P/E 12.71x, Up 19.6% YTD
The fund is an actively-managed ETF that seeks to provide total return by investing at least 80% of its net assets in the equity securities of companies actively involved in the development and utilization of transformational data sharing technologies (read: Will the Bitcoin Bounce Last? ETFs in Focus).
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