Research > ETFs > ETF / ETP Commentary > 

Coronavirus Has a Passing Interest Impact on Tech ETFs

  • Related Symbols
  • XLK
The Technology Select Sector SPDR Fund (XLK A) and other technology ETFs are often viewed as growth plays, but in recent years, the sector and its traditional ETFs have been strong sources of increasing shareholder rewards, including buybacks.XLK tries to reflect the performance of the Technology Select Sector Index, which is comprised of technology and telecom sector of the S&P 500. The ETF includes companies from technology hardware, storage, and peripherals; software; diversified telecommunication services; communications equipment; semiconductors and semiconductor equipment; internet software and services; IT services; electronic equipment, instruments, and components; and wireless telecommunication services.While many XLK components, including Microsoft (MSFT), Apple (AAPL) and Intel (INTC), sport some of the strongest balance sheets in the U.S., some technology companies are reining in spending amid the COVID-19 pandemic and that includes paring buyback programs as an avenue for bolstering liquidity.“US technology companies will shift focus away from share buybacks to maintenance of extra liquidity, given the effects of coronavirus and expectations for a resulting deep global recession,” said Fitch Ratings in a recent note. “With few exceptions, the technology sector has been slow relative to others in announcing changes to financial strategies due to the pandemic, as the result of strong cash flow generation and large cash balances.”XLK Can Still RewardBuybacks were only one part of the equation when it came to embracing technology and the coronavirus impact on that scenario is likely to be fleeting. Additionally, many XLK components remain compelling sources of dividend growth and the sector as a whole is looking better on valuation.“We view the technology sector as being at medium risk to the effects of coronavirus due to weaker demand as supply chain challenges have eased,” said Fitch. “Fitch is forecasting a deep global recession as its baseline forecast for 2020. We expect world real GDP growth to fall to negative 1.9% in 2020 with the U.S. and Eurozone down by negative 3.3% and negative 4.2%, respectively. China is expected to grow by less than 2%. A full recovery to pre-virus GDP is not expected until late 2021.”XLK seeks investment results that correspond generally to the price and yield performance of publicly traded equity securities of companies in the Technology Select Sector Index. When COVID-19 abates, it’s possible that tech buybacks will roar back.“While we expect the technology sector share buybacks to decline substantially during the current crisis, history portends a reacceleration of buybacks upon recovery,” according to Fitch. “The potential use of net proceeds from investment-grade bond issuances intended to pre-emptively shore up liquidity to fund stock buybacks upon recovery resulting in structurally higher leverage metrics than pre-pandemic levels could be an issue.”This article originally appeared on ETFTrends.com.

Performance data shown is past performance and is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. Yield and return will vary, therefore you have a gain or loss when you sell your shares. For standard quarterly performance, go to the fund's Snapshot page by clicking on the ETF/ETP's symbol.

ETFs may trade at a premium or discount to their NAV and are subject to the market fluctuations of their underlying investments.

For iShares ETFs, Fidelity receives compensation from the ETF sponsor and/or its affiliates in connection with an exclusive long-term marketing program that includes promotion of iShares ETFs and inclusion of iShares funds in certain FBS platforms and investment programs. Please note, this security will not be marginable for 30 days from the settlement date, at which time it will automatically become eligible for margin collateral. Additional information about the sources, amounts, and terms of compensation can be found in the ETF's prospectus and related documents. Fidelity may add or waive commissions on ETFs without prior notice. BlackRock and iShares are registered trademarks of BlackRock, Inc. and its affiliates.

FBS receives compensation from the fund's advisor or its affiliates in connection with a marketing program that includes the promotion of this security and other ETFs to customers ("Marketing Program"). The Marketing Program creates incentives for FBS to encourage the purchase of certain ETFs. Additional information about the sources, amounts, and terms of compensation is in the ETF's prospectus and related documents. Please note that this security will not be marginable for 30 days from the settlement date, at which time it will automatically become eligible for margin collateral.

News, commentary (including "Related Symbols") and events are from third-party sources unaffiliated with Fidelity. Fidelity does not endorse or adopt their content. Fidelity makes no guarantees that information supplied is accurate, complete, or timely, and does not provide any warranties regarding results obtained from their use.

Any data, charts and other information provided on this page are intended to help self-directed investors evaluate exchange traded products (ETPs), including, but limited to exchange traded funds (ETFs) and exchange traded notes (ETNs). Criteria and inputs entered, including the choice to make ETP comparisons, are at the sole discretion of the user and are solely for the convenience of the user. Analyst opinions, ratings and reports are provided by third-parties unaffiliated with Fidelity. All information supplied or obtained from this page is for informational purposes only and should not be considered investment advice or guidance, an offer of or a solicitation of an offer to buy or sell a particular security, or a recommendation or endorsement by Fidelity of any security or investment strategy. Fidelity does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating ETPs. Fidelity makes no guarantees that information supplied is accurate, complete, or timely, and does not provide any warranties regarding results obtained from their use. Determine which securities are right for you based on your investment objectives, risk tolerance, financial situation and other individual factors and re-evaluate them on a periodic basis.

Before investing in any exchange traded product, you should consider its investment objective, risks, charges and expenses. Contact Fidelity for a prospectus, offering circular or, if available, a summary prospectus containing this information. Read it carefully.