For equity markets, 2022 was the worst year since the 2008 financial crisis. The S&P 500 fell nearly 20%, while the Dow lost almost 9% over the year. Technology stocks were hit hardest: the tech sector dropped more than 29%, and the NASDAQ — heavily weighted toward tech — plunged about 33%.
This year has brought a partial rebound for many technology shares, with the sector outpacing the broader S&P 500 in several stretches. Still, valuations remain well below their previous highs, leaving investors to weigh risk against potential opportunity.
What’s affecting the value of tech stocks?
Tech companies have faced a combination of macroeconomic and geopolitical pressures over the past year. Global economic uncertainty, the war in Ukraine, persistent inflation, rising interest rates, ongoing supply-chain challenges, stretched valuations and disappointing earnings all weighed on investor sentiment.
Technology firms often derive a large portion of their stock value from projected future earnings. When investors lower their growth expectations or worry that future profits will be smaller than previously forecast, tech share prices tend to fall faster and further than those of more mature, asset-heavy industries.
To illustrate: several major names experienced steep declines in 2022. Some market leaders saw material losses in market value as investors reassessed growth prospects and the impact of higher borrowing costs.
These conditions have forced even the largest tech firms to take cost-cutting measures to preserve margins and improve profitability. Actions such as workforce reductions and spending freezes have been part of the industry response to slower growth and squeezed margins.
Is now a good time to invest in tech stocks?
Large declines mean that many tech stocks are trading at significant discounts compared with their recent peaks. Over the past decade, the sector often appeared expensive on traditional valuation metrics such as price-to-earnings (P/E) and price-to-book. Today, those measures have eased, and some high-quality names trade at more attractive levels.
Buying after a decline can create opportunities, but timing the absolute market bottom is notoriously difficult. Many investors prefer to take advantage of lower prices over time rather than attempting to make a single, perfectly timed purchase.
One disciplined approach is dollar-cost averaging: investing a fixed amount at regular intervals. That strategy spreads the timing risk and smooths the impact of market volatility, allowing investors to buy more shares when prices are low and fewer when prices are high.
Large-cap technology companies that dominated the prior bull market lost trillions in market capitalization during the sell-off. For long-term investors who believe in the underlying businesses and their competitive positions, that created attractive entry points to build positions gradually.
Investing in Canadian tech ETFs
For investors seeking diversified exposure to the technology sector without the risk and effort of selecting individual stocks, exchange-traded funds (ETFs) can be an efficient solution. ETFs pool a basket of companies, offering broad sector exposure at lower cost than buying many single equities.
Tech-focused ETFs can include income-generating strategies that combine equity ownership with option-based yield enhancement. For example, some funds hold a portfolio of large-cap technology companies and use covered call strategies to generate additional income. Covered calls involve selling call options on stocks the fund already owns; the option premiums provide income that is distributed to shareholders.
Other ETFs pursue higher income and growth by adding modest leverage to the same underlying portfolio. A leveraged ETF typically borrows cash or uses derivatives to amplify the daily returns of its holdings. That leverage can boost income and potential returns in a rising market but also increases volatility and downside risk.
Leveraged and covered-call ETFs appeal to investors with specific objectives — such as seeking monthly cash flow or enhanced yield — and who understand the risks those strategies introduce. For long-term portfolios, a core allocation to a well-diversified tech ETF may offer a cost-effective way to capture sector growth while reducing single-stock concentration risk.
Investors considering tech ETFs should evaluate fund structure, fees, income-generation methods, and how the ETF fits with their overall risk tolerance and time horizon. Diversification across several holdings and awareness of leverage or option strategies are important when comparing products.
From the MoneySense Glossary:
An option is a contract that gives the buyer the right, but not the obligation, to buy or sell a security at a specified strike price on or before a set expiration date. Call options give the holder the right to buy the underlying asset at the strike price; put options give the holder the right to sell at the strike price. Options are derivative securities because their value is tied to the price of the underlying asset. A “covered” option is one where the seller already owns the underlying security; a “naked” option is sold without ownership of the underlying.
Technically, a covered-call approach sacrifices some upside potential in exchange for immediate income from option premiums. For investors who prioritize steady income and are comfortable capping upside, it can be an attractive complement to a broader portfolio.
Leverage, by contrast, magnifies both gains and losses. A leveraged ETF that uses modest borrowing to increase exposure can produce higher monthly distributions but will also be more sensitive to market swings. That makes suitability and position sizing critical for investors considering leveraged products.
Overall, investors with a longer horizon and a tolerance for volatility may find tech-focused ETFs — whether income-oriented, leveraged, or plain-market exposure — a practical way to add technology to their portfolios. These products can deliver sector participation with diversification, professional management and transparent fee structures, making them useful building blocks for many investment strategies.
Further reading on investing
- 3 ways to recession-proof your RRIF
- Best in show: How to find and invest in market leaders
- Two ways to boost retirement savings and income as lifespans grow
- What high inflation means for your retirement savings
- How to pick the right ETF for your needs
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