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5 ETFs Leading the Tech Outperformance in May

The technology sector has been at the forefront of the stock market rally in May, primarily thanks to the artificial intelligence (AI) mania. Moderating inflation, upbeat corporate earnings, and safe-plays appeal also added to the strength.

While almost all the ETFs in the space gained handsomely, we have highlighted five that are leading the rally. These include The Spear Alpha ETF SPRX, TrueShares Technology, AI and Deep Learning ETF LRNZ, AXS Esoterica NextG Economy ETF WUGI, VanEck Vectors Semiconductor ETF SMH, and MicroSectors FANG+ ETN FNGS.

The AI mania has accelerated into the summer months, pushing key stocks like Nvidia (NVDA) and Microsoft (MSFT) higher. In fact, Nvidia joined the trillion-dollar market capitalization club and became the first chipmaker to ever hit the trillion level (read: ETFs to Buy on Nvidia's Blowout Q1 Earnings).

Additionally, investors’ flight to mega-cap tech stocks resulted in the concentration of market gains into a few companies like Apple (AAPL), Alphabet (GOOGL, GOOG), Amazon (AMZN), Meta Platforms (META) and Tesla (TSLA). These stocks have strong balance sheets, durable revenue streams and robust profit margins, making them attractive investments. They are better positioned to withstand a possible economic downturn. These high-profile companies also have demonstrated improved cost discipline, leading to better-than-expected earnings.

Bank of America strategist Michael Hartnett calls these stocks as the “Magnificent Seven.” After a huge rally in May, these stocks together added $3.35 trillion in market value this year.  

The AI boost has also pushed Marvell Technology (MRVL) higher. The stock is up 65% this month after the chipmaker expects to double its AI revenues in fiscal 2024. American Micro Devices (AMD) also provided impressive returns to investors this month. Cloud-based security company Zscaler (ZS) is up 45%.

The tech leadership is further supported by bets that the Fed is nearing the end of its interest rate hiking cycle. Per CME FedWatch Tool, markets have priced in a 74% chance the Fed pauses rate hikes at its June policy meeting and a 40% chance the Fed could cut rates 25 basis points in November, a move that would likely be bullish for stocks. As the tech sector relies on borrowing for superior growth, it is cheaper to borrow more money for further initiatives when interest rates are low.

Further, technology has a solid Zacks Sector Rank, being in the top 44%, suggesting continued outperformance in the coming months. The long-term outlook for the sector remains strong, given that the global digital shift has accelerated e-commerce for everything, ranging from remote working to entertainment and shopping. The rapid adoption of cloud computing, big data, the Internet of Things, wearables, VR headsets, drones, virtual reality, machine learning, digital communication, blockchain and 5G technology should continue to fuel a rally (read: Nvidia, AI boom & Chip ETFs).

Let’s dig into the details of the above-mentioned ETFs:

The Spear Alpha ETF (SPRX)

The Spear Alpha ETF is an actively managed fund that invests in companies poised to benefit from breakthrough trends in industrial technology. The ETF’s objective is to find underappreciated opportunities across different industrial supply chains that are beneficiaries of secular themes such as enterprise digitalization, automation & robotics, artificial intelligence, environmental focus and decarbonization, photonics and additive manufacturing, and space exploration. The Spear Alpha ETF holds 23 stocks in its basket and NVDA, AMD, ZS and MRVL are among the top 10 holdings.

The Spear Alpha ETF has accumulated $4.1 million in its asset base and charges 75 bps in annual fees. SPRX trades in an average daily volume of 5,000 shares.

TrueShares Technology, AI and Deep Learning ETF (LRNZ)

TrueShares Technology, AI and Deep Learning ETF is an actively managed fund targeting companies with leading-edge artificial intelligence, machine learning, or deep-learning technology platforms, algorithms, or applications that are believed to provide distinct competitive advantages in an industry historically characterized by a winner-take-all consolidation behavior.

TrueShares Technology, AI and Deep Learning ETF holds 22 stocks in its basket, with NVDA and AMD taking the top two spots. Zscaler also takes significant exposure in the LRNZ portfolio. It charges 68 bps in fees per year. LRNZ has amassed $18.6 million in its asset base and trades in an average daily volume of 8,000 shares.

AXS Esoterica NextG Economy ETF (WUGI)

AXS Esoterica NextG Economy ETF is an actively managed ETF that invests in stocks of companies that benefit from the ever-evolving digital economy. It holds 30 stocks in the basket.  Nvidia, Advanced Micro Devices, Marvell Technology, Microsoft, Amazon and Tesla are among the top 10 holdings. Esoterica NextG Economy ETF has key holdings in electronic compo-semiconductor, computer software and applications software.

AXS Esoterica NextG Economy ETF has accumulated $18.7 million in its asset base and charges 75 bps in fees per year. WUGI trades in an average daily volume of 2,000 shares.

VanEck Vectors Semiconductor ETF (SMH)

VanEck Vectors Semiconductor ETF offers exposure to the companies involved in semiconductor production and equipment. SMH follows the MVIS US Listed Semiconductor 25 Index, which tracks the most-liquid companies in the industry based on market capitalization and trading volume. VanEck Vectors Semiconductor ETF holds 25 stocks in its basket, with Nvidia and AMD making up for a combined 20% share (read: Tech ETFs Burning Hot on AI-Fueled Nvidia Surge).  

VanEck Vectors Semiconductor ETF has managed assets worth $8.5 billion and charges 35 bps in annual fees and expenses. SMH is heavily traded with a volume of 7 million shares per day and has a Zacks ETF Rank #2 (Buy) with a High risk outlook.

MicroSectors FANG+ ETN (FNGS)

MicroSectors FANG+ ETN is linked to the performance of the NYSE FANG+ Index, which is an equal-dollar weighted index designed to provide exposure to a group of highly traded growth stocks of next-generation technology and tech-enabled companies. It holds 10 equal-weighted stocks in its basket, out of which eight are in-focus firms that saw a huge surge in share price (read: FANG ETF (FNGS) Hits New 52-Week High).

MicroSectors FANG+ ETN has accumulated $70.9 million in its asset base and charges 58 bps in annual fees. FNGS trades in an average daily volume of 67,000 shares and has a Zacks ETF Rank #3.

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VanEck Semiconductor ETF (SMH): ETF Research Reports

MicroSectors FANG+ ETN (FNGS): ETF Research Reports

TrueShares Technology, AI and Deep Learning ETF (LRNZ): ETF Research Reports

AXS Esoterica NextG Economy ETF (WUGI): ETF Research Reports

Spear Alpha ETF (SPRX): ETF Research Reports

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Zacks Investment Research