Tech Funds: What the Pros Are Buying Now

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May 13, 2009 10:21am ETF BASIC NEWS

techAlthough financial services stocks have taken much of the credit for the broad-based market rally that began more than two months ago, technology names may be the safer bet for all kinds of economic scenarios that might lie ahead. After all, banks and other financial names still have a host of unresolved issues around capital levels and distressed assets — and remain vulnerable to another batch of grim economic data.

All 15 broad technology sector exchange-traded funds, as well as 17 subsector ETFs, are trading between 25% and 40% higher since the Standard & Poor’s 500-stock index hit its bear-market low on Mar. 9. But the gains by tech stocks aren’t merely tracking the rally in the broader equities market. In fact, they have significantly outpaced the Nasdaq composite index, known for its tech-heavy focus, since the year began.

Safe from Collapse, Tech Thrives

Indeed, technology stocks reached their lows in November. The rebound in the sector has been driven less by fundamental considerations than by the realization that the worst-case scenarios involving the collapse of the financial system were not going to come to fruition, says Ryan Jacob, manager of the $30 million Jacob Internet Fund (JAMFX).

Once the federal government decided to throw its full support behind the financial services industry, most of those scary scenarios came off the table, and Jacobs says he can’t imagine the market returning to that extreme level of fear again, whatever may happen in the economy.

What’s made tech stocks so attractive over the past four to five months? The fact that most of these companies still have an opportunity to show growth within their industries even if there’s no growth in the economy as a whole, according to Jacob. With so much cash and minimal or no debt on their balance sheets, these companies have the means to continue investing in internal growth initiatives and acquisitions, which is important since access to capital is likely to remain tight for the rest of this year and possibly longer, he adds.

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