From mid-February to mid-May of this year, the Nasdaq underperformed the S&P 500, Dow Jones Industrial Average, and Russell 2000. During this period, the tech index was down by 9% while the other indices were up by 6%, 8%, and down 3% respectively. Of course, this followed many months during which the Nasdaq composite was the clear leader as many tech stocks saw an incredible surge in earnings and revenue due to the pandemic.
However, the Nasdaq has resumed its leadership role since mid-May with a 13.8% gain. One major catalyst for this outperformance is the drop in longer-term rates which has correlated to lower growth expectations. This tends to lead to money moving from value, cyclical, and financial stocks into tech and growth stocks which are heavily represented in the Nasdaq. Additionally, there were concerns that tech stocks would see a decline in earnings due to elevated comps from the pandemic.
So far, this hasn’t been the case as tech stocks have continued to top earnings expectations and issue strong guidance. If you’d like to take advantage of Nasdaq’s momentum, consider adding the following 3 ETFs to your portfolio: First Trust Cloud Computing ETF (SKYY), PureFund ISE CyberSecurity ETF (HACK), and Global X Robotics & Artificial Intelligence Thematic ETF (BOTZ).
First Trust Cloud Computing ETF (SKYY)
Cloud computing stocks were one of the hottest sectors last year due to their high margins, fast growth, and surge in adoption during the pandemic. From mid-February to mid-May, SKYY was down by 20% along with many tech stocks. Shares have rebounded from these lows and are about 5% off all-time highs.
Many were expecting that corporate spending on cloud computing would decelerate as the economy returned to normal. However, this is turning out to not be the case as evidenced by recent earnings reports which are actually showing an acceleration in cloud adoption. Further, job listings for cloud migration continue to increase as well, indicating that this trend remains in its early stages.
In fact, we are seeing more innovation and businesses being built on top of these cloud platforms. For companies, investing in cloud computing is essential to remaining competitive. The POWR Ratings are also bullish on SKYY as it’s rated an A which translates to a Strong Buy.
The POWR Ratings also assesses ETFs by component grades to give investors more insight. Interestingly, SKYY has A grades for Trade Grade and Buy & Hold which indicates short-term and long-term upside. To see more of SKYY’s POWR Ratings, click here.
PureFunds ISE Cybersecurity ETF (HACK)
While cloud computing makes companies’ tech stacks leaner and more powerful, it does come with increased security risks. Therefore, cybersecurity spending is rising commensurately with cloud spending.
The costs of a cyberattack can be significant in tangible and intangible ways. It can include trade secrets, intellectual property, customer trust, regulatory scrutiny, and a disruption in operations. Further, cybersecurity is increasingly becoming important at the government and national security levels.
Therefore, I’m bullish on HACK which is an ETF composed of high-quality cybersecurity companies. The fund tracks the Prime Cyber Defense Index, a market capitalization-weighted index that targets companies actively involved in providing cybersecurity technology and services.
HACK has $1.6 billion as AUM and an expense ratio of 0.6%. Although the fund does have international exposure, 83.5% of its assets are in the United States. It offers exposure to multiple segments of the cybersecurity industry such as Systems Software, IT Consulting & Other Services, and Communications Equipment.
How does HACK stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
B for Peer Grade
A for Overall POWR Rating.
Global X Robotics & Artificial Intelligence Thematic ETF (BOTZ)
People invest in tech stocks, because they want to take advantage of the trends that are driving growth and reshaping our world. Two of these trends are robotics and artificial intelligence (AI).
The global robotics industry is estimated to grow to over $100 billion by 2030. The technology still remains in its infancy and too expensive for mass use, but in lab settings, there are interesting experiments showing the potential for massive disruption in terms of handling household chores, manufacturing, assembly, construction, etc.
Connected to the advances in robotics is AI. AI is estimated to be worth over $500 billion by 2030 and grow at a 35% CAGR. In the same way that robots are mimicking human movements and now going beyond. AI has the potential to learn, make connections, and apply knowledge like humans and go beyond due to more computational power. Many believe that AI will be integral to corporate operations in the same way that enterprise software has become over the past decade.
BOTZ is one ETF that offers exposure to these trends for investors. It has investments in stocks across the world in a variety of areas including sensors, software, industrial robotics, automation, nonindustrial robots, unmanned vehicles, and artificial intelligence.
The POWR Ratings are also bullish on BOTZ as it has a B rating which translates to a Buy. The POWR Ratings also assesses ETFs by various components including Buy & Hold, Trade Grade, Peer Grade, and Industry Rank. To see BOTZ’s component grades, click here.
Discover Today’s Best Growth Stocks
This article was written by Jaimini Desai, Chief Growth Strategist for StockNews.com. Jaimini has been dialed into the hottest trends in investing:
- Electric Vehicles
- Internet of Things
- Cloud Computing
- And Much More
If you would like to see more of his best growth stock ideas, then click the link below.
HACK shares were trading at $62.75 per share on Friday morning, down $0.24 (-0.38%). Year-to-date, HACK has gained 9.05%, versus a 18.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles. More...
More Resources for the Stocks in this Article
|Ticker||POWR Rating||Industry Rank||Rank in Industry|
|HACK||Get Rating||Get Rating||Get Rating|
|BOTZ||Get Rating||Get Rating||Get Rating|
|SKYY||Get Rating||Get Rating||Get Rating|