It might be a little early to call it conclusively, but the recent weakness in the tech sector looks like it might be coming to an end. Investors have been piling into more traditional economic recovery stocks since the end of January as interest rates have spiked. Despite having a stellar 2020, this rise in rates has made growth, or tech, stocks unattractive as it lowers the current value of their future earnings whilst also making it more expensive for them to borrow and fund their growth.
Nowhere is this rotation more evident than in the major indices. The tech-heavy Nasdaq is only just positive for 2021 so far, up a mere 1.5% as of yesterday’s close. As we head into the long weekend, the industrial-focused Dow Jones can boast of an 8% gain over the same period. But yesterday’s 1.5% jump in the former was a welcome sight and if it means Wall Street is still happy to buy into tech, even in a higher rate environment, here are two tech ETFs worth considering.
Autonomous & Electric Vehicles (NASDAQ: DRIV)
After flying high for most of last year, shares of DRIV fell more than 13% in February which in the eyes of many investors, was probably a much-needed correction. There had been few down days of note in the 200% rally that preceded it and in the past few weeks the selling has clearly dried up.
While Tesla (NASDAQ: TSLA) may have dominated the headlines on the electric vehicle front up to now, all the signs point towards the industry becoming more and more mainstream. The likes of Ford (NYSE: F) and General Motors (NYSE: GM) have both bet big on the space, with Wedbush Securities believing this “green tidal wave” is ushering in a golden age for electric vehicles.
The good news for investors who want some exposure to this is that they don’t have to just buy Tesla, whose four-digit price-to-earnings ratio might scare even the bravest, or just buy Ford, whose recent record of contracting sales might scare even the most optimistic. In DRIV they get an ETF that bundles them in together with some of the hotter names from the software side of things who are also making headway in the space.
ARKK was perhaps the poster boy of equities in 2020. It seemed to arrive on the scene out of nowhere, and dominated headlines for all the right reasons. Then came the pop in interest rates last quarter and shares quickly dropped 30%. But having consolidated just above those lows for the past month, it’s reasonable to think that there’s a fresh bid coming as long as rates don’t pop again in the short term.
ARK’s creator, Cathie Woods, has made it clear she’s not phased by the higher rate environment and indeed is adding at these prices. Alongside its sister ETF, ARK Genomics (NASDAQ: ARKG), ARKK is possibly the most forward thinking ETF out there, and arguably the most optimistic. While many of the components are at the cutting edge of their industries, many are also pre-profit if not pre-revenue.
That being said, heavyweights like Tesla, Square (
NYSE: SQ), and Teladoc Health (
NYSE: TDOC) make up a sizable weight and with the rest of their peers in the fund are no doubt on the front line of
true 21st century industries. If, as an investor and a person, you believe that tomorrow will be better than today, it’s hard not to want to back these kinds of companies. And as shares look to stabilize after the recent haircut, there’s a sense that this could be an ideal
starting entry point too.
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