There Are Always Winners And Losers, Even In A Sector As Hot As Tech

By: Spencer Israel

Much has been made of the fact that, despite the highest unemployment since The Great Depression and the biggest decline in GDP since The Great Recession, U.S. stocks have rallied hard over the past seven weeks.

Leading that rally has been the tech sector. In a sign of either resilience or exuberance (depending on who you ask), the three largest tech ETFs by assets, the Invesco QQQ ETF (QQQ), Technology Select Sector SPDR Fund (XLK), and Vanguard Information Technology ETF (VGT), are all positive for the year.

But while tech has spurred one of the sharpest market rallies in history, not all tech has participated. The median year-to-date return of the 72 non-leveraged, non-inverse, technology sector ETFs with history going back to January 1 is just 0.53% (the average is slightly higher, at 0.63%).

It underscores how even in a sector as hot as tech is right now, there are still winners and losers.

The Winners

The Cloud
The three pureplay cloud computing ETFs—the WisdomTree Cloud Computing Fund (WCLD), Global X Cloud Computing ETF (CLOU), and First Trust ISE Cloud Computing Index Fund (SKYY)— are up an average of 17.5% in 2020, despite the fact that they track different indexes and have dramatically different top holdings.

Online Retail
Though not technically classified as technology, e-commerce has been one of the best-performing trades of 2020. The ProShares Online Retail ETF (ONLN) and Amplify Online Retail ETF (IBUY) are up 24% and 17% respectively this year on the back of strength in stocks like Wayfair, eBay, Etsy, and

Large Cap Tech
The rich have gotten richer. Thanks to the dominance of names like Microsoft, Facebook, Alphabet, and Netflix, ETFs that provide exposure to the large and mega-cap tech are among the leaders this year. The O’Shares Global Internet Giants ETF (OGIG), First Trust Dow Jones Internet Index (FDN), SPDR S&P Internet ETF (XWEB), and Invesco NASDAQ Internet ETF (PNQI) are up an average of 12.5% year-to-date.

The Losers

The “industry of the decade” is off to an inauspicious start to the new one. Five semiconductor ETFs, the VanEck Vectors Semiconductor ETF (SMH), iShares PHLX Semiconductor ETF (SOXX), First Trust Nasdaq Semiconductor ETF (FTXL), SPDR S&P Semiconductor ETF (XSD), and Invesco Dynamic Semiconductors ETF (PSI) are all down year-to-date.

Tech that isn’t U.S., China, or Large Cap.
If you’re a tech company that’s part of one of those three groups, chances are you’re underperforming in 2020. The iShares MSCI Europe Small-Cap ETF (IEUS) is down 23% year-to-date, while the Invesco S&P SmallCap Information Technology ETF (PSCT) is down 13%. The KraneShares Emerging Markets Consumer Technology ETF (KEMQ) (which has diversified exposure across Asia, Europe, and Latin America, is down 7%.

Future Tech
One thing all the top-performing tech companies have in common is they are helping society get through this crisis right now. And they are being rewarded for it. Investors have not been as kind to companies in early stage industries that promise to change our future.

Among this group is the ETFMG Drone Economy Strategy ETF (IFLY), 3D Printing ETF (PRNT), ETFMG Prime Mobile Payments ETF (IPAY), Tortoise Digital Payments Infrastructure Fund (TPAY), Global X Internet of Things Thematic ETF (SNSR), and ROBO Global Robotics and Automation Index ETF (ROBO), all of which are in the bottom quartile of technology ETFs in 2020.

All return data as of May 10, 2020.

The author holds no positions in any of the funds mentioned.

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