Buy the Dip: 3 ETFs That Have Taken a Beating in 2022
The entry of exchange-traded funds (ETFs) in the stock market was welcome news to risk-averse and passive investors. Besides simplifying the selection process, the asset class enable investors to spread the risks. However, ETFs aren’t risk-free because of these salient features. All ETFs carry risk-ratings from low and medium to high.
Among the stable performers amid today’s precarious market are BMO Equal Weight Banks Index ETF and iShares Core Conservative Balanced ETF Portfolio. You can stick to the pair for recurring income streams from dividends.
However, tech-heavy ETFs are taking a beating in 2022. TD Global Technology Leaders Index ETF (TSX:TEC), BMO NASDAQ 100 Equity Index ETF (TSX:ZNQ), and iShares S&P/TSX Capped Information Technology Index ETF (TSX:XIT) have mirrored the underperformance of TSX’s technology sector so far in 2022.
TEC is down 28.35%, while ZNQ is losing by 34.29%. Meanwhile, XIT is far worse with its 37.3% year-to-date loss. You can buy them on the dip before the eventual rebound of tech stocks or stay clear while the slump continues.
TD Asset Management is the portfolio adviser to TEC. This ETF tracks the performance of the Solactive Global Technology Leaders Index, which is comprised primarily of mid- to large-cap tech stocks. But in terms of geography, U.S. tech firms have 84.9% representation versus the 1.1% of Canadian firms.
However, regarding sector mix, the basket is not purely technology (71.4%). The fund also holds stocks from eight other sectors, including consumer services (8.3%), financial (5.8%), and consumer goods (5.7%). The top two holdings are Apple (14.75%) and Microsoft (12.03%). If you invest today, TEC trades at $22.11 per share.
ZNQ, through BMO Global Asset Management, provides exposure to non-financial equities in the United States. This ETF replicates the performance of a NASDAQ-listed companies index — specifically, 100 of the largest firms in the tech-heavy index. Like TEC, the basket includes stocks from other sectors.
However, the geographic allocation is 100% American. Apple and Microsoft are also the top two holdings out of a total of 103 stocks. In 3.01 years, ZNQ’s total return is 53.05% (15.2% CAGR). It trades at $49.57 today, or 25.85% lower than its peak of $66.85 on January 4, 2022.
The target exposure BlackRock’s ETF is only on Canadian tech firms. XIT replicates the performance of the S&P/TSX Capped Information Technology Index and aims to deliver long-term capital growth. As of May 17, 2022, application software companies (50.81%) have the most significant representation, followed by internet services & infrastructure (19.71%) and IT consulting & other services (18.44%).
Constellation Software and Shopify are the top two out of 26 holdings. XIT has done well in the last five years (+124.58%), but unfortunately, it could plunge some more from its bargain price of $32.46 today.
Technology stocks and tech-heavy ETFs like TEC, ZNQ, and XIT aren’t the best investment choices today. If you want to stay invested in this asset class, look for funds that pays oversized dividends and with zero exposure to the tech sector.
The post Buy the Dip: 3 ETFs That Have Taken a Beating in 2022 appeared first on The Motley Fool Canada.
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* Returns as of 4/14/22
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Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool recommends Apple, Constellation Software, and Microsoft.
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