This article was originally published on ETFTrends.com.
Facebook Inc.'s (FB) recent public relations flap involving Cambridge Analytica is calling attention to an array of technology exchange traded funds featuring exposure to shares of the social media giant. That includes some leveraged fare, such as the Direxion Daily Technology Bull 3X Shares (TECL) . TECL takes the leveraged 300% daily exposure of the Technology Select Sector Index.
That index 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.
“The Cambridge Analytica scandal, which sits among the many controversies currently surrounding Facebook, has done a number on the company’s reputation, both on Main Street and Wall Street,” said Direxion in a recent note. “In the week following the revelations that its data was used to target voters in the presidential election, Facebook shares experienced their largest percentage drop—16%—since July 2012, knocking out $80 billion of market cap.”
Other Ideas for Tech Investing
TECL has a bearish contemporary, the Direxion Daily Technology Bear 3X Shares (TECS) , which reflects the -3x or -300% daily performance of the S&P Technology Select Sector Index, to play the down markets. TECS could be an interesting near-term play for aggressive traders, particularly when some data suggest investors are reducing tech exposure.
“In Q1 2018, we saw the first quarterly outflows from this asset class since 2016, though the net outflow of $151m is not significant compared with the $88bn in Q4 inflows,” according to IHS Markit. “So far in Q2, the outflow trend has continued, but with the quarter being one week old that could easily reverse if the market is able to find its footing.”
Facebook and other tech titans remain the primary drivers of how TECL and TECS perform. These ETFs are best deployed as short-term trades and should not be held for weeks or months.
“How Facebook handles this situation could in turn influence how today’s online behemoths, mainly Amazon, Google, and Apple, deal with this issue. These four companies make up almost 33% of the benchmark index for TECL and TECS,” according to Direxion.
Potential traders should keep in mind that these leveraged ETFs are designed to produce triple the performance of the underlying market on a daily basis. Consequently, when investors look at the long-term performance of a typical leveraged ETF, people may notice that the funds do not perfectly reflect their intended strategies.
For more information on the tech sector, visit our technology category.
Tom Lydon's clients own shares of Facebook.
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