With the environment shifting, investors may want to focus on specific sectors and areas of the market this year, such as technology names and related exchange traded funds.
Year-to-date, the iShares U.S. Technology ETF (NYSEArca: IYW) is up 0.8% and Technology Select Sector SPDR (NYSEArca: XLK) is 0.6% higher. [Investors Rotate Into Growth-Oriented Tech Stocks, ETFs]
BlackRock global chief investment strategist Russ Koesterich argues that technology will continue to do well, CNBC reports.
Koesterich pointed out that while the tech space is growing, we are not repeating a dotcom-era bubble of runaway valuations.
“Today the biggest component in the NASDAQ is… Apple. And it’s trading at a P/E ratio of less than 15x earnings, cheaper than many regulated utility companies,” Koesterich said. “Plus, the new crop of companies is using asset light business models to produce real revenue at an astonishing pace.”
The tech space is sporting a slightly higher valuation than the broader equities market, but it isn’t too high for a growth-oriented sector. For instance, IYW shows a 19.1 price-to-earnings ratio and XLK has a 18.5 P/E.
Koesterich on Investopedia also maintained that BlackRock still favors technology stocks as earnings growth has been th emain driver of recent gains.
Additionally, we are witnessing rapid growth in information security, with money managers competing with Silicon Valley startups to attract PhD’s in machine learning.
“Virtually every company is engaged in a war of attrition with cyber criminals, with the average breach going undetected for 200 days! The result? A race to obtain state-of-the-art cyber weaponry between corporate security and hackers who are driven by age-old motives like greed (criminals), ideology (activists) and revenge (disgruntled ex-employees),” Koesterich added.
Investments into the cyber security space is also quickly gaining momentum. For instance, the PureFunds ISE Cyber Security ETF (NYSEArca: HACK), which began trading in November, has grown to $493.1 million in assets under management. [JPMorgan’s War on Hackers Bodes Well for Cyber Security ETF]
For more information on the tech space, visit our technology category.
Max Chen contributed to this article.