Some Could Turn to Tech-Heavy Growth ETFs in a Recession

While investors are gearing up for a potential dip into an economic recession, some may be turning to growth-related exchange traded funds that track previous big tech leaders in hopes that these stalwart companies are better suited to deal with the troubles ahead.

The technology-heavy Invesco QQQ Trust (QQQ), which tracks the Nasdaq-100, has enjoyed close to $2.7 billion in net inflows over the past month, according to VettaFi data.

Some investors have pointed out that growth companies can be less affected by the broader economy’s performance, which may help the category outperform the rest of the market should the Federal Reserve’s hawkish monetary policies drag the U.S. into a recession, Reuters reported.

“You are starting to see some cracks in economic growth, which will help select companies that are very well positioned in the technology space,” Saira Malik, chief investment officer at Nuveen, told Reuters.

“The conceptual companies that don’t have profitability will continue to be challenged because you need real fundamentals to back it up,” Malik added.

Looking ahead, a global poll of investors by Deutsche Bank in June revealed that 90% of respondents now anticipate a U.S. recession by the end of 2023, compared to 78% the month prior.

Global fund managers have grown more accepting of the growth style, raising their allocations to technology stocks by approximately seven basis points, according to the latest survey from BofA Global Research. Nevertheless, they remain bearish on the sector as a whole.

Retail investors, on the other hand, have been picking up “evergreen large tech companies” like Apple Inc on the recent dips, according to Vanda Research.

Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers Solutions, argued that big tech shares have already taken a beating, which has lowered valuations to attractive levels.

For instance, the forward price-to-earnings ratio on the S&P 500 technology sector is now at 19.1, its lowest level since early 2020, according to Yardeni Research.

“We are seeing some of the most attractive valuations for this space that we’ve seen in a long time,” Janasiewicz told Reuters.

For more news, information, and strategy, visit the ETF Education Channel.