Recent earnings reports from large- and mega-cap growth stocks are a mixed bag, and that’s putting a positive spin on things. In reality, fourth-quarter updates from a slew of bellwether technology companies (and some from other sectors) could put a dent in what’s been a strong start to 2023 for growth equities. Should growth stocks succumb to a near-term pullback, it could pay for investors to see the forest through the trees and realize that exchange traded funds (ETFs) such as the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM) still offer plenty of opportunity for long-term investors.
In particular, QQQM, due to its lower expense ratio and its ability to reinvest dividends, is well-suited for long-term, cost-conscious investors. Importantly, both QQQ and QQQM, because their rosters are identical, are ideally positioned to provide exposure to compelling themes that are expected to blossom in the years ahead. Those include decarbonization, e-commerce, and broader disruptive tech.
While clean technology and renewable energy are all the rage these days, there’s still plenty of work to be done when it comes to trimming global carbon emissions, and as that effort gains momentum, some QQQ and QQQM member firms could benefit.
“It’s fair to say that the developed world is accelerating its efforts to reduce carbon emissions. Still, this is a tall order. To reach net zero by 2050, carbon emissions would need to start falling by about 8% per year. Even during 2020, when COVID-19 lockdowns limited mobility and global GDP shrank, emissions fell only 5%,” according to Morgan Stanley research.
With an almost 16% weight to consumer discretionary stocks — the third-largest sector allocation in the ETFs — QQQ and QQQM have clear ties to new consumer spending trends. Beyond that, global commerce itself is poised to be reshaped as the world becomes increasingly interconnected, which is a theme that could benefit a variety of the traditional technology firms residing in the Invesco ETFs.
“A recent example of the complexities created by this kind of secular trend is in the semiconductor industry. On one hand, fresh export controls meant to protect U.S. intellectual property created a need for companies to near-shore production, resulting in higher costs. On the other hand, capital equipment companies could benefit as their goods and services are likely in more demand as part of this supply chain realignment,” added Morgan Stanley.
Another point in favor of QQQ and QQQM, from a long-term perspective, is that disruptive tech concepts are intersecting with a variety of other industries, including some that have historically been reluctant to embrace next-generation tech.
“In fact, fragmented industries or those with high regulatory barriers have typically not reaped as many benefits from tech-driven productivity, but suddenly look poised for a multi-year transition via tech diffusion,” concluded Morgan Stanley.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.