The Nasdaq 100, which represents the largest growth companies in America, went up every single year between 2009 and 2021 with the exception of a small decline in 2018. This likely gave investors a false sense of confidence, but the past 18 months have flipped that narrative on its head. Since topping out in the fall of 2021, the index has fallen 22%, and that is taking into account the nearly 20% year-to-date rebound. Below you will find three tech ETFs to sell, as owning them no longer makes sense in the current environment.
While tech ETFs delivered big gains during the previous bull market era, when conditions change, investors’ strategies have to evolve as well. These three tech ETFs to sell simply haven’t been able to adapt. Leave them behind and seek better returns elsewhere.
|ARK Innovation ETF
|Invesco NASDAQ Next Gen 100 ETF
|VanEck Social Sentiment ETF
ARK Innovation ETF (ARKK)
At one point, the ARK Innovation ETF (NYSEARCA:ARKK) was the world’s largest actively managed ETF, gaining more than 150% in 2020. Fund manager Cathie Wood became a star as she sought to find disruptive stock winners.
Unfortunately, ARKK hasn’t been able to evolve with the times. The tailwind behind disruptive stocks tapered off as the economy faltered and investors became wary of companies that don’t make money. After hitting an all-time high near $158 in early 2021, shares have plummeted more than 75%.
Watching interviews with Wood, she seems unswayed by recent changes in the macroeconomic picture or the tech industry specifically. ARKK remains full of speculative companies that are long on ambition but haven’t yet achieved substantial profits or positive cash flow. If the tech sector’s bust drags on, it’s going to be another long year for ARKK’s investors.
The Ark Innovation ETF perfectly captured the market’s tech enthusiasm in 2020. But that moment has passed, making it one of the tech ETFs to sell.
Invesco NASDAQ Next Gen 100 ETF (QQQJ)
The NASDAQ Next Gen 100 ETF (NASDAQ:QQQJ) is a unique fund. It owns the 101st to 200th largest companies listed on the Nasdaq exchange. So, while the Nasdaq 100 focuses on tech titans, QQQJ’s focus is on more mid-sized operations with greater upside potential.
In a bull market, this is a great strategy. A mid-sized social media company or cloud computing firm can be expected to grow more quickly than, say, Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG). As Alphabet already generates $280 billion in annual revenue, it is harder to grow quickly. Smaller firms, on the other hand, tend to see higher comps on their smaller revenue bases.
But a bear market is not the time to be trying to harvest this smaller-company premium. As growth contracts and layoffs and spending cuts become the norm in the tech industry, smaller companies will have a far tougher time weathering the storm than bigger ones. Alphabet, for instance, has $113.8 billion in cash to ride out a bear market. But for less established tech companies, a prolonged industry downturn could be a make-or-break event.
All this to say that there’s a time and a place for owning the sort of companies held in this fund. But that time is probably still at least a year away, if not longer. For now, QQQJ is among the tech ETFs to sell.
VanEck Social Sentiment ETF (BUZZ)
The VanEck Social Sentiment ETF (NYSEARCA:BUZZ) is based on a clever idea. In theory, the ETF can analyze what’s happening on social media and find the stocks generating the most retail investor attention. The ETF loads up on these in hopes that this buzz will lead to outsized returns.
BUZZ got off to a hot start, thanks in part to the endorsement of Dave Portnoy, a famous blogger and founder of Barstool Sports. The ETF topped $500 million in assets within two weeks of its launch in March 2021.
Had the ETF launched prior to 2020, it might have delivered tremendous returns. After all, BUZZ’s top position is GameStop (NYSE:GME). But the market has changed. Social media hype has taken a back seat to other more fundamental factors such as profitability and positive cash flow.
Since topping out in November 2021, shares are down 48%. There’s a market environment where the VanEck Social Sentiment ETF might deliver outsized returns, but this isn’t it.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.