Technology, which was the most loved-sector, lost its momentum lately on overvaluation concerns triggered by surging yields. Notably, 10-year yields are hovering around its highest level in a year at 1.36% after remaining below 1% for most of 2020.

A rise in long-term yields lowers the present value of companies’ future earnings. Tech stocks tend to have higher-than-average price-to-earnings ratios, which value a stock on how much the company earns in profits each year versus its stock price. The big tech companies proved its strong resilience amid the pandemic and reported big profits last year driven by e-commerce surge. Now, with the pandemic seemingly ending with the faster vaccination rollout, consumers can return to pre-pandemic habits, thereby hurting the sector’s performance

Additionally, Tesla’s crazy rally, which powered the technology sector last year, has fizzled out. The stock has lost a quarter of its value since Feb 8 when the electric-car firm said that it had spent $1.5 billion on bitcoin in a bid to boost returns on cash.

However, tech stocks rebounded following Federal Reserve Chairman Jerome Powell’s testimony, which eased investors’ fears over inflation. The Fed pledged to maintain support for the economy by keeping interest rates low and said that inflation would remain in control. Powell said that higher bond yields reflect economic optimism and not inflation fears. This has reassured investors, making the beaten-down stock prices attractive at current levels.

Further, the outlook for the tech sector remains solid given the global digital shift that has accelerated e-commerce for everything, ranging from remote working to entertainment and shopping. The rapid adoption of cloud computing, big data, Internet of Things, wearables, VR headsets, drones, virtual reality, artificial intelligence, machine learning, digital communication and 5G technology will continue to drive the sector higher. Moreover, technology has a solid Zacks Sector Rank, being in the top 32%, suggesting outperformance in the coming months.

As such, investors should buy the dip in the sector with ETFs that were leading the surge before the sell-off. For them, we have highlighted five hot ETFs that were in red over the past week but have a solid upside potential given the current trends.

3D Printing ETF– Down 12.1%

PRNT follows the Total 3D-Printing Index, which is designed to track the price movement of companies involved in the 3D printing industry. It has a basket of 49 securities with 3D printing hardware taking the largest share at 50%, while CAD & 3D printing simulation services and 3D printing centers round off the next two with double-digit allocation each. The fund charges 66 bps in annual fees while trading in an average daily volume of 646,000 shares. The ETF has amassed $695 million in its asset base.

Direxion Moonshot Innovators ETF– Down 12%

This ETF offers exposure to the 50 most innovative US companies at the forefront of changing our lives today, and tomorrow, by identifying the companies both pursuing innovation, and having the potential to disrupt existing technologies and/or industries. It follows the S&P Kensho Moonshots Index and holds 50 stocks in its basket with genetic engineering and cyber security accounting for double-digit exposure each. The fund has accumulated $200 million in its asset base since its debut in last November and charges 65 bps in annual fees from investors. It trades in average daily volume of 172,000 shares.

Ark Innovation ETF– Down 10.4%

It is an actively managed fund seeking long-term capital appreciation by investing in companies that benefit from the development of new products or services, technological improvements and advancements in scientific research. In total, the fund holds 55 securities in its basket with healthcare and information technology taking the largest share at 31.5% and 29%, respectively while communication services and consumer discretionary round off the next two spots. The fund charges 75 bps in annual fees and trades in an average daily volume of 7.2 million shares. It ahs AUM of $28.2 billion

Amplify Transformational Data Sharing ETF– Down 9.3%

This fund is actively managed, providing investors global exposure to a basket of the leading companies engaged in the development and utilization of blockchain technologies. It has AUM of $1.3 billion in its asset base and trades in average daily volume of 823,000 shares. The product holds a basket of 55 stocks with American firms dominating about 56.8% of the portfolio, followed by Asia Pacific (36.8%). The ETF has an expense ratio of 0.70%

ARK Next Generation Internet ETF– Down 9.2%

It is an actively managed fund seeking long-term capital appreciation by investing in companies that benefit from the development of new products or services, technological improvements and advancements in scientific research. The fund holds 57 securities in its basket and charges 79 bps in annual fees. The product has gathered $9.6 billion in its asset base and trades in volume of 1.5 million shares.

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