Investors fell out of love with global technology stocks in the fourth quarter of 2018 as concerns mounted over their lofty valuations and ability to continue delivering double-digit revenue growth amid signs of a slowing economy, unresolved trade tensions between the United States and China, calls for heightened regulation, and industry privacy scandals.
Despite the challenges facing the tech sector, BlackRock, Inc. (BLK) chief equity strategist Kate Moore told Bloomberg Television that the world's largest money manager is not giving up on technology. "The tech sector is still a well-liked and well-loved sector across BlackRock," she said. Moore added that investors should consider owning both U.S. and Chinese technology stocks for long-term diversity, as both markets have less overlap than often assumed.
Investors will closely monitor FAANG stocks – a toothy Wall Street acronym to discribe Facebook, Inc. (FB), Amazon.com, Inc. (AMZN), Apple Inc. (AAPL), Netflix, Inc. (NFLX) and Google parent Alphabet Inc. (GOOG) – for industry leadership. The FAANG group accounted for 81% of the S&P 500's 2018 first half gain of 1.7%.
Those who want to trade global technology stocks should consider looking for opportunities in these three exchange-traded funds (ETFs) that provide exposure to some of 2019's hottest technology trends, such as social media, cybersecurity and cloud computing.
Global X Social Media ETF (SOCL)
Launched in 2011, the Global X Social Media ETF (SOCL) seeks to track the performance of the Solactive Social Media Index. As its name suggests, the fund focuses on social media companies. Key holdings in the ETF's basket include Tencent Holdings Limited (TCEHY), Twitter Inc. (TWTR) and Facebook, Inc. A. These stocks make it a suitable play for investors who want exposure to heavyweight U.S. and Chinese technology companies. As of Jan. 9, 2019, SOCL charges an annual management fee of 0.65%, offers a 1.67% dividend and is up 5.41% over the first five trading sessions of the year. It has $135 million in assets under management (AUM) with an average daily trading volume (ADTV) of 35,730.
SOCL shares traded sideways for the first half of 2018 before a steady downtrend emerged. The ETF has staged somewhat of a recovery in early 2019 but is approaching a key resistance area between $29 and $30 where the price may find headwinds from a downtrend line dating back to late July and the November and December countertrend highs. If price clears this level, look for a move up to test the next major resistance area at $33. Alternatively, if price fails, look for a fall back to the December swing low near $26.30.
ETFMG Prime Cyber Security ETF (HACK)
The ETFMG Prime Cyber Security ETF (HACK), with a large asset pool of $1.41 billion, aims to provide a similar return to the Prime Cyber Defense Index. The benchmark index consists of companies actively involved in providing cybersecurity technology and services. Companies from the United States make up over 85% of the fund's portfolio, with other notable country exposure to Japan (6.42%) and the United Kingdom (6.02%). HACK has a year-to-date (YTD) return of 2.26% as of Jan. 9, 2019. The ETF, which formed in 2014, pays a 0.18% dividend yield that helps partially offset its 0.60% expense ratio.
The fund's share price rose roughly 28% between January and mid-September before getting caught in the technology onslaught during the fourth quarter. The 50-day simple moving average (SMA) crossed below the 200-day SMA in November, creating what technical analysts refer to as a "death cross" – a bearish signal that suggests a change in trend to the downside. The price has traded within a descending channel as it has fallen and is approaching significant resistance at $35.5 from the channel pattern's upper trendline and 50-day SMA. A break of this level could see a return to the June and July swing highs. Rejection of the area may result in a move back down to the Christmas Eve low at $31.56.
First Trust Cloud Computing ETF (SKYY)
The First Trust Cloud Computing ETF (SKYY), created in mid-2011, attempts to offer similar investment results to the ISE Cloud Computing Index. The ETF holds a mix of pure-play and non-pure-play cloud computing stocks from countries such as the United States, Canada and Germany. SKYY has AUM of $1.6 billion, offers a 0.95% yield and has returned just over 3% YTD as of Jan. 9, 2019. The fund's moderate expense ratio of 0.60% is slightly above the 0.52% category average. A razor-thin spread of just 0.06% and daily turnover of more than 345,000 shares make it a suitable instrument for both day traders and swing traders.
SKYY's chart shows price trending steadily higher for much of 2018 until heavy selling hit the fund in October. Like HACK, the ETF has since oscillated within a descending channel that has well-established support and resistance areas that traders should watch. A breakout above the channel pattern's upper trendline at $50.50 could see the price continue rising to test the 52-week high at $57.07, while a stall at the level could trigger a downside reversal that revisits the December low near $45.