“The index has lopsided sector weightings, including a heavy stake in technology stocks, that it doesn’t explicitly target. These unintentional tilts are a source of risk,” said Morningstar in a recent note. “In addition, the index’s focus on a single exchange (the Nasdaq) unnecessarily limits the stocks available to it. So, despite its strong record, modified market-cap-weighting approach, which promotes low turnover, and cost advantage against its actively managed peers, the fund earns a Morningstar Analyst Rating of Neutral.”
QQQ, one of the largest U.S. ETFs, has equal-weight equivalents equal-weight equivalents such as the Direxion NASDAQ-100 Equal Weighted Index Shares (NYSEArca: QQQE) and the First Trust NASDAQ-100 Equal Weighted Index Fund (NasdaqGS: QQEW).
“What about earnings and valuations? Both are reasonable areas of concern. While the conclusions may surprise some, a review of historical facts on January 7, 2017 moved those concerns out of showstopper territory,” according to ETF Daily News.
For more news and strategy on the Technology market, visit our Technology category.
Tom Lydon’s clients own shares of Apple, Facebook and QQQ.