Tempting Technology ETF Has Plenty Of 2021 Tailwinds
It's the largest sector in the S&P 500 and perhaps the most beloved, so it's not surprising that technology draws a crows.
It's also not surprising that some traders love leverage with technology exchange traded funds and in an expanding universe of such tactical instruments, an old friend should be on traders' radar screens this year: The Direxion Daily Technology Bull 3X Shares (NYSE:TECL).
Up nearly 16% over the past week, TECL attempts to deliver triple the daily returns of the S&P 500 Technology Index. That makes TECL a leveraged proxy on Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) as those two tech titans combine for over 43% of that index.
Why It's Important
As a triple-leveraged play on a sector that isn't exactly docile, TECL shouldn't be held for more than a few days at a time. However, the environment is right for traders to move in and out of TECL over the course of 2021.
“If part of the thesis for further stock gains is massive central bank liquidity, tech should benefit from this trend, particularly if volatility continues to fall. Since 2008 tech has generally outperformed when financial conditions are improving. The average outperformance is approximately 30-35 basis points (bps) a month,” according to BlackRock.
Another reason traders may want to embrace TECL this year is that the coronavirus pandemic, for its obvious negative consequences, is having some positive effects on tech.
“A good example of this is online shopping. Looking at domestic credit card data reveals an interesting pattern. As you would have expected, the share of spending going to online retailers spiked early in the pandemic, notes BlackRock. “Less obvious was the staying power of this trend. Even as lockdowns eased, online retailer’s wallet share remained elevated relative to the pre-pandemic norm. In other words, even as consumer mobility returned, many households came to appreciate the convenience of services such as online grocery delivery.”
Another catalyst for TECL is the robust consumer side of the tech story – one that's a potential spark for many of the stocks in TECL's index, such as Apple.
“Household tech spending increased by more than $100 billion, or 25%, in the six months between May and November. While some of the end-of-year bump was a function of early holiday spending, the trend is clear and has been in place for some time,” notes BlackRock. “For investors, all of this suggests pivoting within tech rather than abandoning the sector.”
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