InvestorPlace – Stock Market News, Stock Advice & Trading Tips
The novel coronavirus has made it clear that technology is indispensable. Although tech stocks were not immune from the selloff in February and March, most tech stocks have made remarkable comebacks since hitting 52-week lows in late March. For many of these names, second-quarter earnings were extremely resilient. With that in mind, this article will focus on what I believe to be the best five tech ETFs to buy for safer growth.
So how do you find tech ETFs to buy? Start by looking at the tech-heavy Nasdaq Exchange, which includes giants like Adobe (NASDAQ:ADBE), Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT), among others. Especially over the past decade, these companies have had a substantial influence on our lives, becoming household names. Shares in these tech leaders are not necessarily cheap. But investors seem willing to pay for the stability and growth they provide.
There are also companies in emerging fields such as artificial intelligence, robotics and big data.
According to Mahesh Srinivasan, an associate professor and director of the Institute for Global Business at The University of Akron, “Some of the major technologies that will dominate in the coming decade include 5G telecommunications, block chains, autonomous driving technology and the evolution of aerospace technologies including space exploration.”
However, Srinivasan highlights that while the U.S. has long driven tech development, things are changing. Foreign firms are stepping up to help lead the way in all corners of the tech sector.
With all that in mind, here are five of the best tech ETFs to buy right now:
- ARK Autonomous Technology & Robotics ETF (BATS:ARKQ)
- Communication Services Select Sector Fund (NYSEARCA:XLC)
- Global X Robotics & Artificial Intelligence ETF (NASDAQ:BOTZ)
- iShares Nasdaq Biotechnology ETF (NASDAQ:IBB)
- SPDR S&P Semiconductor ETF (NYSEARCA:XSD)
Tech ETFs to Buy: ARK Autonomous Technology & Robotics ETF (ARKQ)
Expense Ratio: 0.75% per year, or $75 on an initial $10,000 investment
The ARK Autonomous Technology & Robotics ETF is comprised of companies that may develop, produce or enable autonomous transportation, robotics and automation, 3D printing, energy storage and space exploration.
ARKQ currently includes 38 holdings. The top ten account for approximately 50% of total net assets. Its top five companies are Tesla (NASDAQ:TSLA), 2U (NASDAQ:TWOU), Xilinx (NASDAQ:XLNX), Materialise (NASDAQ:MTLS) and Proto Labs (NYSE:PRLB).
Year-to-date, the fund is up about 50%. In fact, ARKQ recently hit an all-time high. However, it is important to note that Tesla’s weighting within this ETF is 9.9%. Therefore, daily moves in TSLA affect the price of ARKQ. 2U has also contributed to the growth of the fund so far in the year as global demand for e-learning solutions is on the rise.
If you are looking to invest in disruptive innovation for the long run, you may want to research ARKQ further. In case of a price decline toward $50, long-term investors may find better value in the fund.
Communication Services Select Sector Fund (XLC)
Expense ratio: 0.13%
The Communication Services Select Sector Fund provides exposure to businesses from the media, retailing and software industries in the U.S. Since early spring, broader equity markets in the U.S. have been charging ahead. Yet, many investors wonder if they should take off their rose-colored glasses, especially given the upcoming presidential election.
Since markets are always forward-looking, between now and November, they will likely factor in election developments. With the uncertainty of an election, we can expect some degree of volatility. Still, particular stocks stand to benefit from the election itself, no matter who is in the lead.
XLC, which tracks the Communication Services Select Sector index, is an ETF which could benefit as the presidential race heats up in the coming weeks. It currently has 26 holdings. These include Facebook (NASDAQ:FB), Alphabet and Disney (NYSE:DIS). Shares of these Facebook and Alphabet comprise around 45% of net assets.
Past elections have shown that media companies tend to reap billions of dollars in advertising around this significant event. Facebook and Alphabet’s combined share of the U.S. digital ad market duopoly is well over 50%. Therefore, those investors who believe social media and advertising will likely be dominant themes during the election season may want to research XLC further.
YTD, the fund is up over 14%. It has also recently hit an all-time high at $61.76. XLC is likely to offer better value if the price dips below $60 — and especially if it dips toward $55.
Tech ETFs to Buy: Global X Robotics & Artificial Intelligence ETF (BOTZ)
Expense Ratio: 0.68%
The Global X Robotics & Artificial Intelligence ETF invests in companies that stand to benefit from increased adoption and of robotics and AI. Such businesses may include those involved with industrial robotics and automation, non-industrial robots and autonomous vehicles. The fund tracks the Indxx Global Robotics & Artificial Intelligence Thematic Index.
BOTZ currently includes 31 holdings. The top ten make up approximately 60% of total net assets, which stand close to $1.7 billion. This top group holds Nvidia (NASDAQ:NVDA), Intuitive Surgical (NASDAQ:ISRG) and Brooks Automation (NASDAQ:BRKS). One perk of this fund is that it provides exposure to non-U.S. markets.
So far in the year, BOTZ is up about 24%. In case of short-term selling in the fund, long-term investors may consider buying the dips, especially if the price goes toward or even below $25. While the role of technology becomes increasingly important, I expect BOTZ to perform well in the future.
iShares Nasdaq Biotechnology ETF (IBB)
Expense Ratio: 0.46%
Launched in 2001, the iShares Nasdaq Biotechnology ETF is one of the most followed ETFs. It tracks the Nasdaq Biotechnology Index, which contains securities of Nasdaq-listed companies classified as either biotechnology or pharmaceutical names that also meet other eligibility criteria.
IBB’s five largest holdings are Amgen (NASDAQ:AMGN), Vertex Pharmaceuticals (NASDAQ:VRTX), Gilead Sciences (NASDAQ:GILD), Regeneron (NASDAQ:REGN) and Illumina (NASDAQ:ILMN). They make up around 35% of the fund, which overall invests in 207 companies.
So far in 2020, IBB is up over 8%. Given the increases in prices of individual shares since March, there may be some profit-taking in the short term. A decline toward the $125 level is likely. This could provide potential IBB investors with a better entry point.
Its beta value of 1.01 means IBB is more volatile than the broader market. This value is partly a reflection of the fact that biotech ETFs and biopharma stocks may have higher risk-return profiles than the broader markets. Therefore, short-term traders may want to exercise caution as prices can be choppy.
Tech ETFs to Buy: SPDR S&P Semiconductor ETF (XSD)
Expense ratio: 0.35%
The SPDR S&P Semiconductor ETF is an equal-weight fund, making it potentially appropriate for investors looking for exposure to mid- and small-cap semiconductor names.
Semiconductors are the brains inside electronic devices. Chips are used in a wide range of products in computing, telecommunications, gaming, transportation, military systems and healthcare. As a result, shares of semiconductor companies usually act as a bellwether for the technology sector as a whole.
Note however that the semiconductor industry is cyclical. During periods of high demand, upturns occur. There may also be supply shortages, leading to higher prices and revenue growth. Thus profits of chip companies may ebb and flow dramatically. It’s never easy to know whether the downside of a given cycle might take longer than previously expected.
For most semiconductor companies, China is both a consumer and a supplier. China consumes more than 50% of all semiconductors made worldwide. Furthermore, many U.S. tech companies either have manufacturing plants in China or use Chinese companies in their supply chains. Thus, in 2018 and 2019, pressures like the U.S.-China trade war weighed significantly on the sector.
Since early spring, semiconductor shares have been buoyed by the tech tailwinds as well as the expectation that global economies will recover in a V-shaped manner. However, in case of a prolonged economic slump, investor sentiment could easily turn south.
The fund currently has 36 holdings, the largest of which is SunPower (NASDAQ:SPWR) at just 4.4%. Two other stocks held include Nvidia and Advanced Micro Devices (NASDAQ:AMD).
Trailing price-earnings and price-book ratios stand at 28.4 times and 4.3 times respectively. Due to the run-up in price in recent months, a pullback toward $110 is likely. Long-term investors may regard such a decline in price as an opportunity to go long the ETF.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, including a Ph.D. degree, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. She also writes about UK-based shares. As of this writing, Tezcan did not hold a position in any of the aforementioned securities.
More From InvestorPlace
The post The 5 Best Tech ETFs to Buy for Safer Growth appeared first on InvestorPlace.