Is There ‘Massive’ Opportunity in Tech? ETFs to Play

One of Goldman’s top tech fund managers, Brook Dane, said that the recent sell-off in the tech space (due to rising rates) has opened up massive buying opportunity in some tech stocks, as quoted on CNBC. Due to the sky-high inflation, the Fed has paced up policy tightening. The Fed enacted its first rate-hike (worth 25-bp) since the start of the pandemic in March and then a 50-bp rate hike in May first time in 22 years with many more likely to come this year.

This rising rate worries have dampened the appeal for the stocks that rely on easy borrowing for superior growth. Technology falls in this category. In any case, tech stocks are guilty of overvaluation. Still, there are a few more reasons that may support the space despite rising rate fears.              

Fears of More Mutations of COVID-19

Omicron is currently the variant that has taken the world in its grip. It is highly contagious, though milder in nature. As it is infecting people a lot faster than the previous variants, there are chances we will likely have more mutations or variants in the coming days. This will keep the charm of stay-at-home stocks like technology more-or-less intact.

Tech is New Normal

“New normal” trends like work-and-learn-from-home and online shopping, increasing digital payments and growing video streaming are sure to stay for long. The growing adoption of cloud computing, and the ongoing infusion of AI, machine learning and IoT are the other winning areas.

Big Tech Resistant to Inflation? 

Cramer explained that big tech names like Google-parent Alphabet GOOGL and Microsoft’s MSFT business model is not that responsive to changes in inflation, including the rise in prices for raw materials, chemicals and commodities like gas, plastics, packaging and so on. Higher transportation charges are also less likely to bother the operation of big tech companies. 5G could be a boom time for Apple as many will upgrade their phones while carriers expand their coverage of the new faster networks.

So, one may not choose to shy away from the tech sector altogether. Rather bet on the ones that are still have strong fundamentals and cheaper valuation. The biggest tech ETF Technology Select Sector SPDR ETF XLK has a P/E ratio of 22.90X.

Below we highlight a few tech ETFs that have a lower P/E than XLK. All these ETFs have a Zacks Rank #1 (Strong Buy).

SPDR S&P Semiconductor ETF XSD – 17.19X

This pure-play semiconductor ETF holds 40 stocks in total. Monolithic Power Systems (3.11%), Analog Devices (2.93%) and SiTime Corp (2.79%) round out the top three positions in the fund. The fund charges 35 bps in fees.

SPDR NYSE Technology ETF XNTK – 20.53X

Semiconductors take 26% of the fund, followed by Systems software (9.20%), semiconductor equipment (8.80%) and application software (7.55%). International Business Machines (4.60%), Booking Holdings (4.07%) and Broadcom (3.81%) hold the top three spots in the fund. The fund charges 35 bps in fees.  

Invesco S&P 500 Equal Weight Technology ETF RYT – 21.79X

No stock accounts for more than 2.35% of the 77-stock portfolio. Forward P/E of the fund is…

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