The technology sector, once a star performer, is missing out all the fun this year despite the soaring equity markets. The sector has been the biggest drag on earnings growth in Q2 driven by the sluggish performances from the top players. Total earnings for the sector were down 10.1% on 0.4% revenue growth.
This trend was brought about by weak overseas demand, a reduction in global information technology spending, and a strong dollar.
Moving into this coming earnings season, which is only a few days away, this trend is rebounding on improving global economic conditions. As per Zacks Estimates, the technology sector is expected to post earnings and revenue growth of 0.2% and 1.8%, respectively.
The U.S. economy is picking up at a faster pace while a slowdown in China, seen in nine of the past 10 quarters, is seemingly bottoming out. Further, the European economy is also on the verge of recovery on the back of upbeat data, less concerns on debt levels, and a firmer currency.
These improving fundamentals from across the globe would fuel growth in many tech stocks, leading to a surge in many ETFs tracking these companies. Moreover, the tech stocks seem well-positioned going forward as cloud computing and mobility segments are gaining importance and offering new avenues for growth.
Investors seeking to tap the growing technology sector with lower risk should focus on top ranked ETFs in the sector. One way to find a top ranked ETF in the tech space is by using the Zacks ETF Ranking system (read: Zacks ETF Rank Guide).
About the Zacks ETF Rank
A look at the top ranked tech ETFs can be done by using the Zacks ETF Rank. This technique provides a recommendation for the ETF in the context of our outlook of the underlying industry, sector, style box or asset class. Our proprietary methodology also takes into account the risk preferences of investors.
The aim of our model is to select the best ETFs within each risk category. We assign each ETF one of five ranks within each risk bucket. Thus, the Zacks ETF Rank reflects the expected return of an ETF relative to other ETFs with a similar level of risk.