The popular Nasdaq-100 Index (NDX) and the largest ETF tracking that index, the Invesco QQQ (QQQ) are outperforming rival broad market benchmarks this year. Large exposure to the steady technology sector is helping QQQ stand firm in a tough market, but there’s more to the story.
QQQ allocates a combined 89% of its weight to the technology, communication services, and consumer discretionary sectors. What’s inside QQQ goes a long way toward explaining the fund’s returns, but what’s left out of the fund also helps.
“If investors are looking to gain access to innovative companies, they could position their portfolio towards technology products and services as that sector continues to grow,” said Ryan McCormack, QQQ strategist at Invesco in remarks sent to ETF Trends. “QQQ delivers exposure to companies that are at the forefront of transformation.”
Going With Growth:
The growth style, though, maybe gaining momentum as investors turned to upbeat economic and earnings data, causing many to adopt a more risk-on attitude. Since growth stocks show high multiples, investors may expect that the companies will sustain a high growth rate. In contrast, traders may feel that firms with low multiples would continue to experience tepid growth.
“The Nasdaq-100 is heavily allocated towards top-performing industries such as Technology, Consumer Services, and Health Care, which have helped the Nasdaq-100 outperform the S&P 500 by a wide margin between Dec. 31, 2007, and March. 31, 2020,” according to Nasdaq Global Indexes.
QQQ’s healthcare exposure matters, too.
“QQQs healthcare holdings relative to other market tracking indexes are geared towards biotech, and we have a larger weighting to names like Gilead and Regeneron,” said McCormack. “Unlike other indexes that have more exposure to large-cap pharma and medical devices, which have not fared nearly as well in this unprecedented market.”
An increasingly digital global economy also bodes well the long-term QQQ thesis.
NASDAQ 100 LONG (Buy)
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