Shares of tech companies have been in the spotlight in 2020, in part because of their resilience and, in fact, growth, despite the various economic and health consequences of the pandemic.
Indeed, over much of 2020, tech stocks, as well as ETFs tracking various tech indices, have made spectacular returns. In this category, those on the Composite usually get the most headlines.
While the rotation may not continue, but seems to be happening in fits and starts, for example, the list includes 100 of the largest non-financial companies listed on the NASDAQ, up more than 41.7 % year-to-date (YTD). Likewise, the Invesco QQQ Trust (NASDAQ :), a fund that tracks the NASDAQ 100 index, has returned more than 41%.
Since most members of the NASDAQ 100 do not pay dividends. Therefore, QQQ's current price supports a dividend yield of only 0.54%.
Investors looking for companies that may be next to be included in the NASDAQ 100 can use the Invesco NASDAQ Next Gen 100 ETF (NASDAQ :). The fund provides access to the 101st to 200th largest non-financial companies on NASDAQ Composite. It is a new ETF that started trading in October.
For comparison, the index and index are up 13.4% and 5.3%, respectively. Investors looking for ETFs that track these two indices may want to investigate the SPDR S&P 500 (NYSE 🙂 and the SPDR® Dow Jones Industrial Average ETF Trust (NYSE :). While not as tech-heavy as QQQ, these funds also have many technical names that appear in all three commonly used indices. We should note that, in addition to any capital growth, SPY and DIA would also pay dividends, which are currently around 1.55% and 2% respectively.
Recently, however, as news of the availability of coronavirus vaccines to combat the pandemic has begun to make headlines, and hopes of a return to normal for the population and the global economy are beginning to hold, it appears that investors are cycling from overpriced technology stocks to value stocks ravaged by the economic downturn.
This could create a buying opportunity for investors looking to add technology stocks to their portfolios at a better entry point.
The tech industry is growing rapidly
Recent research led by Charles S. Gascon of the Federal Reserve Bank of St. Louis shows how over the past three decades
"The US economy has undergone a profound technological revolution … Innovations in digital computing systems and automation have brought about tectonic shifts in consumer and business behavior across the economy … The technology sector includes industries primarily focused on the developing and producing advanced technology for the rest of the economy … [It] has a dynamic history of expansion and contraction. "
Industry figures agree with the conclusions of this study. CompTIA, a worldwide technical association, cites for example:
"In 2020, the global information technology industry took a small step back in terms of total revenues. As of August 2020, research consultancy IDC expected global sales of $ 4.8 trillion for the year, compared to their original estimate of $ 5. .2 trillion … The United States is the world's largest technology market, accounting for 33% of the total, or about $ 1.6 trillion for 2021. "
Seasoned investors will also agree that many technology stocks are also known for stomach cramps, short-term volatility.
If the much vaunted cyclical rotation accelerates in the coming weeks and technology stocks continue to decline, consider buying the declines in individual tech stocks or an ETF that tracks a tech index like QQQ or QQQJ.
Here's another technology fund that could appeal to a range of market participants:
ARK Innovation ETF
Current Price: $ 123.84
52 Week Range: $ 33.00 – $ 125.84
Dividend Yield: N / A
Expense ratio: 0.75%
The ARK Innovation ETF (NYSE 🙂 provides access to global companies that may be at the forefront of technological advancement and scientific research.
Such companies can focus on genomics, automation, robotics, Internet of Things (IoT), financial technology (fintech), e-commerce, machine learning and alternative energy. Fund managers consider these companies to be one of the & # 39; disruptive innovators & # 39 ;.
As an actively managed fund, ARKK's number of holdings ranges between 35 and 55. The fund was launched in October 2014 and has nearly $ 9 billion in assets.
In terms of current sector breakdown, healthcare tops the list at 35.5%, followed by information technology (28.7%), communications services (16.5%), consumer discretionary (11.1%), financial services (3.8%), and industry and services (3.8%). Almost 50% of the fund's assets are in the top ten stocks.
Tesla (NASDAQ 🙂 electric vehicle (EV) leader, streaming content platform Roku (NASDAQ :), genetic testing company Invitae (NYSE :), Crispr Therapeutics (NASDAQ :), working on gene-based drugs for serious diseases, and fintech group Square (NYSE 🙂 are leading the names in ARKK.
Since the start of the year, the fund is up more than 147%, hitting a record high on December 11. The return since the end of October has been around 30%.
Given the recent impressive price hike, as well as the on-off-again rotation of some technology stocks, profit taking in the ETF is likely to come soon.
It should be noted that the weighting within Tesla's fund, which is close to 630% YTD, is close to 10%. As a result, possible moves at the automaker, which participates in the S&P 500 index on December 21, will have a significant effect on the fund.
We think ARKK would provide better long-term value between $ 100 and $ 110.
