Top performing tech ETFs of 2018


‎Shares of the social networking giant Facebook (FB) have been hammered this week after it was revealed that Cambridge Analytica—a firm working with the Trump campaign—stole information related to about 50 million users.

Facebook led other tech stocks lower on Monday. FANG stocks—Facebook, Amazon (AMZN), Netflix (NFLX) and Alphabet-Google (GOOGL)—lost more than $100 billion in market value on Monday, while Facebook alone lost about $35 billion.

Despite the sell-off, tech is still the best performing sector this year after leading the market last year with a 38% return. Tech is up about 7% this year, while the S&P 500 index is up just about 1.5%

And, there are many reasons to stay positive on technology stocks.

Per Zacks Earnings Trends, 88.5% of tech companies reported better-than-expected earnings and 85.2% reported better-than-expected revenues for Q4. Sector earnings are expected to be up 22.4% in 2018.

Most tech companies, especially the mature ones, have huge piles of cash on their balance sheets and have been returning a lot of cash to their shareholders via dividends and repurchases. These are expected to increase with tax reform as a lot of companies are repatriating their overseas cash.

Also, with so much cash available to them and low leverage, tech companies will be less vulnerable to the rise in interest rates.

Further, there are a number of real growth drivers for tech companies including e-commerce, cloud computing, data storage, mobile, the Internet of Things (IoT) and Artificial Intelligence (AI).

We are discussing three unique tech ETFs–the SPDR S&P Internet ETF (XWEB), SPDR FactSet Innovative Technology ETF (XITK) and First Trust Dow Jones Internet Index (FDN)–that are up more than 15% this year and have risen about 50% over the past year.

Investors should note that two of these ETFs have low assets and so closure risk remains high. When as ETF closes, investors do not lose their money, but they could face undesirable tax consequences.

At the same time, liquidation risk is relatively low for ETFs issued by strong providers like State Street.

These also have low trading volumes so trading costs could be high, due to wider bid-ask spreads and it makes more sense to use limit orders for these ETFs.

SPDR-TECH SELS (XLK): ETF Research Reports

FT-DJ INTRNT IX (FDN): ETF Research Reports

SPDR-FS INV TEC (XITK): ETF Research Reports

SPDR-SP INTRNT (XWEB): ETF Research Reports

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