How to Find Best Value With Tech ETFs

FAANG stocks, or Facebook (NasdaqGS: FB), Apple (NadaqGS: AAPL), Amazon (NasdaqGS: AMZN), Netflix (NasdaqGS: NFLX) and Google (NasdaqGS: GOOG), are not often considered value plays. The same goes for the broader technology sector. Technology’s bullish ways are not, however, a free lunch as rising valuations indicate.

However, some signs indicate there might be some value available with exchange traded funds, such as the Technology Select Sector SPDR Fund (NYSEArca: XLK).

XLK is the largest tech-specific ETF. XLK includes companies from technology hardware, storage, and peripherals; software; diversified telecommunication services; communications equipment; semiconductors and semiconductor equipment; internet software and services; IT services; electronic equipment, instruments and components; and wireless telecommunication services.

“Technology valuations are often perceived as rich relative to other sectors, even when events like data breaches wipe out $37 billion off Facebook’s market value in one day,” said State Street Global Advisors (SSgA) in a recent note. “But this perception fails to account for the diversity of tech companies, their sub-sectors and the long-term growth potential of companies that are leaders in their fields.”

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Tech Investing Still In Favor

While technology, the largest sector allocation in the S&P 500, has seen some recent struggles, many investors remain bullish on the sector.

After surging 37% last year, technology remains a favorite among investors, despite data suggesting technology stocks are relatively expensive as they trade at elevated price-to-earnings compared to the broader S&P 500. Roughly a third of global fund managers say they are overweight tech in their portfolios, according to a recent Bank of America Merrill Lynch survey.