Technology stocks and ETFs have been star performers of this year. The coronavirus outbreak could not take the sheen out of this sector, rather added more to it. Social distancing norms enacted globally to mitigate the spread of the virus compelled people to stay at home, binge on online shopping and work as well as learn from home.
Though many corners of the global economy have started to reopen, the trend for work-and-learn-from home should stay strong. Twitter TWTR has indicated that its employees may opt for permanent work-from-home. Visa V CEO expects the majority of company’s employees to work from home for the rest of 2020.
This new lifestyle will continue to boost various corners of the technology sector, ranging from enterprise cloud computing, cyber security, remote communications, video gaming and e-commerce to online payments.
Tech earnings are up 5.8% on 4.9% higher revenues in Q1. This is in contrast to an 11.1% slump in S&P 500 earnings on 1.3% increase in revenues. The technology sector is among the very few outperformers in the otherwise-downbeat earnings trends. The estimated long-term EPS growth rate for the tech sector is 12.3% versus 8.45% of the S&P 500.
From the price/cash flow (P/FCF) angle, the tech sector is slightly cheaper than the S&P 500. Investors should also note that the P/FCF ratio of the computer and technology market now stands at 20.4x against the S&P 500 Composite Market ETF’s P/CF of 21.1x.
Tech sector’s debt profile is also impressive. Debt as a proportion of equity of the tech sector is 77% versus 87.5% of the S&P 500. Long-term debt as a percentage of capital is 38.6% versus 43.8% for the S&P 500 as a whole.
Are Tech ETFs Cheap?
As one can understand, the tech sector has rallied this year despite all odds. So, prices are not very cheap at the current level. Technology Select Sector SPDR Fund XLK is up 4.1% this year versus 8.6% decline in the S&P 500. Moreover, many retail investors may be cash-strapped at the current level. Then why not find some promising tech ETFs that are still low priced?
Below we highlight a few tech ETFs that are available at below $35/share.
Global X Cybersecurity ETF BUG – $18.08
The underlying Indxx Cybersecurity Index is designed to provide exposure to exchange-listed companies that are positioned to benefit from the increased adoption of cybersecurity technology, including but not limited to companies whose principal business is in the development & management of security protocols preventing intrusion & attacks to systems, networks, applications, computers & mobile devices. The fund charges 50 bps in fees.
Global X Cloud Computing ETF CLOU – $18.75
The Indxx Global Cloud Computing Index provides exposure to exchange-listed companies in developed and emerging markets that are positioned to benefit from the increased adoption of the cloud-computing technology. It charges 68 bps in fees (read: Cloud Computing ETFs to Gain on the New Normal Trends).
3D Printing ETF PRNT – $19.53
The underlying stocks of the fund gives exposure to 3D printing hardware, computer aided design & 3D printing simulation software, 3D printing centers, scanning & measurement and 3D printing materials. The fund charges 66 bps in fees.
Global X FinTech Thematic ETF FINX – $29.80
The underlying Indxx Global FinTech Thematic Index 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 (read: PayPal Surges on Upbeat Q2 Outlook: ETFs to Benefit).
Tortoise Digital Payments Infrastructure Fund TPAY – $30.36
The underlying Tortoise Global Digital Payments Infrastructure Index is a proprietary rules-based, modified market capitalization weighted, float-adjusted index designed to track the overall performance of equity securities of global digital payments infrastructure companies listed on developed country exchanges. The fund charges 40 bps in fees.
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