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Least-Hurt Tech ETFs as China Hits Back

Sanghamitra Saha

The age-old proverb “Sell in May” fits the bill perfectly for the market, thanks to the incendiary move by President Donald Trump regarding his levy of tariffs on Chinese goods. The decision, however, has been retaliated by China. The Trump administration raised the current 10% tariff on $200 billion worth of Chinese goods to 25% on May 10. Moreover, Trump said that he will impose 25% tax on an extra $325 billion of Chinese goods “shortly,” per CNBC (read: 6 Stocks That Mainly Dragged Dow Jones ETFs on Tuesday).

In a reciprocal act, Beijing stated on May 13 that it would increase tariffs on nearly $60 billion worth of American goods. Financial markets took a hit on Monday. The Dow and the S&P 500 index had their worst day since Jan 3, according to Refinitiv. The Nasdaq too had its most awful day of 2019 and the biggest single-day slump since Dec 4, 2018.

SPDR Dow Jones Industrial Average ETF (DIA), SPDR S&P 500 ETF SPY and Invesco QQQ Trust QQQ shed about 2.4%, 2.5% and 3.5% of value, respectively.The trio is down in after-market trading as well (read: US-China Trade Tensions Re-Escalate: 7 Vulnerable ETF Areas).

Technology Stocks: A Key Vulnerable Area

Tech companies, specifically semiconductors and tech hardware and equipment, are most exposed to this trade war. This is because the rising tariffs will make the products of tech giants like Apple and other American biggies costlier to manufacture. This, in turn, will likely compel hardware manufacturers to hike prices at home while duties on the finished goods exporting to China could also make the products expensive for buyers in that country, per techcrunch.com.

Going by the Morgan Stanley equity strategists, “semiconductor and semiconductor equipment companies have the highest revenue exposure to China at 52%” and are thus prone to maximum risks on the heightening trade tensions. Tech Hardware & Equipment companies have about 14% exposure to China. 

Morgan Stanley analyst Katy Huberty estimates that a 25% tariff on the iPhone could result in a price increase of $160 for the iPhone XS. Or Apple could swallow the tax and not raise prices, which could cause a 23% decline in earnings per share in 2020.

Tech ETFs in Focus: Least & Worst Hit

Needless to say that against this backdrop, tech and semiconductor ETFs will be in the red. The sector saw a bloodbath on May 13 with Ark Innovation ETF ARKK and Nasdaq Semiconductor ETF FTXL losing the maximum (down about 5.5% each).

Nonetheless, some tech ETFs did not lose as massively as the semiconductors or funds like DWA Technology Momentum Invesco ETF PTF (down 4.9%) and S&P Smallcap Information Technology Invesco ETF PSCT (down 4.4%) (read: Multi-Asset ETFs to Play as Trade Tensions Ebb and Flow).

Below we highlight a few minimum-hurt tech ETFs amid a full-blown trade tussle.

ETFMG Video Game Tech ETF GAMR – Down 2.2%

First Trust Cloud Computing ETF SKYY – Down 3.3%

First Trust NASDAQ Technology Dividend Index Fund TDIV – Down 3.3%

Global X Social Media ETF SOCL – Down 3.5%

iShares Exponential Technologies ETF XT – Down 3.5%

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Global X Social Media ETF (SOCL): ETF Research Reports
 
ARK Innovation ETF (ARKK): ETF Research Reports
 
First Trust NASDAQ Semiconductor ETF (FTXL): ETF Research Reports
 
ETFMG Video Game Tech ETF (GAMR): ETF Research Reports
 
Invesco S&P SmallCap Information Technology ETF (PSCT): ETF Research Reports
 
First Trust Cloud Computing ETF (SKYY): ETF Research Reports
 
First Trust NASDAQ Technology Dividend Index Fund (TDIV): ETF Research Reports
 
Invesco DWA Technology Momentum ETF (PTF): ETF Research Reports
 
Invesco QQQ (QQQ): ETF Research Reports
 
SPDR S&P 500 ETF (SPY): ETF Research Reports
 
iShares Exponential Technologies ETF (XT): ETF Research Reports
 
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