Like other cyclical sectors, the technology sector has recently been stung by the flareup in trade tensions between the U.S. and China. While that is an obvious headwind for exchange traded funds, such as the iShares U.S. Technology ETF (NYSEArca: IYW), some market observers are recommending investors stick with tech this summer.
IYW reflects the performance of the Dow Jones U.S. Information Technology Index, which includes all tech sector picks in the Dow Jones U.S. Index. Due to the Dow Jones’ classification of information tech names, healthcare technology stocks may be included while payment technology stocks are excluded.
“’Sell in May and go away’ is an old maxim for investors. Evidence is mixed on its validity, but given this year’s rally, the temptation now is understandable, particularly given the recent volatility driven by renewed trade conflicts with China,” said BlackRock in a recent note. “Our take: sure, consider taking some profits and rotating into exposures that offer more resilience if volatility returns. Think of it as the investor version of a ‘staycation’ an opportunity to catch up on chores. But overall, we would not abandon equities.”
Time To Tap Tech?
When considering a sector pick, investors should still do their due diligence. For example, one should survey macro economic environment and analyze business cycles, position according to changes in certain macroeconomic variables, identify secular industry trends, harness long-term growth rends within a particular segment, evaluate sector fundamentals, position towards areas that show attractive valuations and overweight or underweight sectors based on recent performance.
For the companies that have reported first-quarter earnings thus far in the technology sector, 78.9% have beaten EPS estimates and 71.1% beat revenue estimates. For investors who aren’t already allocated into the tech sector, there are exchange-traded funds (ETFs) to take advantage of–all with their own spin on allocation.
“We remain overweight U.S. equities, and one of our favored sectors is technology. Even with strong performance this year, we believe the sector remains appealing,” according to BlackRock. “Technology firms tend to have strong balance sheets and healthy earnings trends, as well as enjoying support from longer-term trends. These are all attractive qualities in a late economic cycle. Furthermore, tech stocks have historically fared well through various yield curve regimes.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.