The technology sector has been beaten down badly this quarter thanks to escalation in U.S.-China trade tensions. Weaker earnings also contributed to the decline. Notably, the ultra-popular Select Sector SPDR Technology ETF XLK has shed 12.9% so far in the fourth quarter versus the loss of 9.1% for the broad market fund SPDR S&P 500 SPY (read: 5 ETFs to Hedge Your Portfolio Against Volatility).
However, renewed hopes of a deal between the two countries returned the appeal for tech stocks, which are heavily exposed to China. This is especially true as both the United States and China kicked off a new round of trade talks, per the Wall Street Journal report. China is working to replace its Made in China 2025 plan, a framework aimed at making China a leader in industries like clean energy cars and robotics, with a new program promising greater access to foreign companies.
Meanwhile, Trump said that he would intervene in the Justice Department’s case against a top executive at China’s telecom giant Huawei if that helps in producing a trade agreement. The President also said that talks between Washington and Beijing were ongoing and he would not increase tariffs on Chinese imports without a comprehensive trade agreement.
Further, holiday optimism is expected to drive tech stocks higher on hopes of a digital shopping spree. Innovative products such as wearables, VR headsets, drones and virtual reality devices are fast becoming technology staples for the savvy Americans. According to the Consumer Technology Association (CTA), U.S. technology spending during the 2018 holiday season (October–December) is expected to reach a record $96.1 billion, up 3.4% from last year.
Mobile shopping will once again surpass shopping via computer as the number of consumers planning to shop via mobile devices is expected to rise to 58%. Consumers will spend a record amount on emerging technology such as smart speakers, smart home devices and smartwatches (read: Top ETF Deals for This Holiday Season).
Given the recovering sentiments and a bullish holiday outlook, the tech sector appears as a compelling last-minute investment. As such, we have highlighted a few beaten-down tech ETFs that could see surge ahead of Christmas:
Global X FinTech ETF FINX
This product invests in companies on the leading edge of the emerging financial technology sector, which encompasses a range of innovations helping to transform established industries like insurance, investing, fundraising, and third-party lending through unique mobile and digital solutions. It follows the Indxx Global FinTech Thematic Index, holding 37 stocks with each making up for no more than 6.6% share. The fund has AUM of $308.9 million and trades in a lower volume of 203,000 shares a day on average. It charges 68 bps in annual fees and has dropped 18.3% this quarter.
SPDR FactSet Innovative Technology ETF XITK
With AUM of $66.8 million, this fund seeks to provide exposure to the most innovative companies with high revenue growth across the technology sector and other industries that deal with technology, such as electronic media. It follows the FactSet Innovative Technology Index and holds 95 stocks in its basket, with none accounting for more than 3.4% of assets. The product has an expense ratio of 0.45% and trades in average daily volume of 17,000 shares. It is down 12.5% this quarter.
SPDR S&P Internet ETF XWEB
This product targets the Internet corner of the broad tech space. It tracks the S&P Internet Select Industry Index and holds 45 stocks in its basket with an equal-weight exposure of around 3%. The fund has accumulated $50 million in its asset base and charges 35 bps in fees from investors. It trades in a light volume of around 16,000 shares a day on average and carries a Zacks ETF Rank #2 (Buy). The ETF has shed nearly 13% this quarter (read: Top Sector ETFs of 2018).
iShares PHLX Semiconductor ETF SOXX
This ETF offers exposure to 30 U.S. companies that design, manufacture and distribute semiconductors by tracking the PHLX SOX Semiconductor Sector Index. It is heavily concentrated on the top three firms that collectively make up for 28.3% of assets. The fund has amassed $1.1 billion in its asset base and charges a fee of 47 bps a year. It trades in a solid volume of 954,000 shares a day and has a Zacks ETF Rank #3 (Hold). SOXX has shed 12% so far this quarter.
Global X Internet of Things ETF SNSR
This fund follows the Indxx Global Internet of Things Thematic Index and provides exposure to companies that stand to benefit from the broader adoption of the Internet of Things (IoT). This includes the development and manufacturing of semiconductors and sensors, integrated products and solutions, and applications serving smart grids, smart homes, connected cars, and the industrial internet. Holding 49 stocks, it is moderately concentrated across components with each holding less than 8.8% of assets. The product has accumulated $76.5 million in AUM and sees average daily volume of around 12,000 shares. Expense ratio comes in at 0.68%. SNSR is down 15.5% this quarter (read: Forget FAANGs, Invest in These Tech ETFs Instead).