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.
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