US technology stocks are suffering once again amid a fresh sell-off, which has hit flows into exchange-traded funds (ETFs) tracking this area of the market over recent days.
The downward move in the FANGs – Facebook, Amazon, Netflix, and Google parent Alphabet – spooked ETF investors on Friday 28 July, who took out over €1bn from the sector that day, according to TrackInsight’s latest data.
The sell-off was kicked off by Amazon reporting a 77% fall in earnings on Thursday 27 July, which saw its shares decline from a high of $10.82 to $10.07 by Monday (31 July), a 7% drop.
This is not the first time technology stocks have rocked the US stock market. Back in June, the sector also experienced significant withdrawals, seemingly triggered by a note written by analysts at Goldman Sachs entitled “Is FANG Mispriced?”
This had led to shares in the big five in the sector – Apple, Microsoft, Facebook, Alphabet and Amazon – to fall between 3% and 4%, while US tech stock ETFs experienced outflows of €1.8bn on the Monday after the event (12 June 2017).
But investors’ jittery reactions do not just come down to one analyst note. The idea that US technology stocks may be overvalued has been around for some time, and a large proportion of investors seem to be concerned about a potential bubble brewing in the sector.
Although performance continues to remain high, despite some small blips that these companies easily recover from, inflows into US technology ETFs this year to date have been choppy.
Over the period to 28 June, investors have committed only €1.9bn to the sector, while outflows in June have taken flows for the month into negative territory (-€1.3bn).
It remains to be seen whether the fluctuations in the prices of the US tech giants will lead to wider and bigger redemptions in the near future, and only time will tell whether investors are prudent to take their money elsewhere.
However, US technology ETFs are not the only way of accessing this growing theme, which is affecting most global industries in one way or another.
Investors can look for areas of technology which are not directly correlated to the big US names. For example, the Global X Robotics & Artificial Intelligence Thematic ETF, which rose 0.81% on Friday while products tracking the Nasdaq fell. Another option is the Global X NASDAQ China Technology ETF, which was up 0.9% on the same day.
There may be more such ETFs on offer in the US, but the suite of products available to European investors is growing every year, and for the discerning investor there are options to gain exposure to technology without taking on the risks of a potential bubble brewing in US tech giants.