Exchange traded fund investors should consider how the next generation of technology leaders is transforming the world around us in ways that go well beyond FAANG stocks and sector differences.
In the recent webcast, Beyond Tech: How Innovation Is Changing Everything, John Feyerer, Sr. Director of Equity ETF Product Strategy, Invesco; and Ryan McCormack, QQQ Strategist, Invesco, highlighted the ongoing outperformance of technology-related industries in the current market rally. The technology sector is also the largest weight within the NASDAQ-100 while the same is true for both the S&P 500 and Russell 1000 Growth Indices. Additionally, the communication services sector is now second largest sector within the NASDAQ-100 after its introduction late in 2018.
The popularly watched Invesco QQQ Trust (NASDAQ: QQQ) has been the go-to investment vehicle to follow the Nasdaq-100. The benchmark is designed to measure the performance of the largest 100 non-financial companies that trade on the Nasdaq stock market, providing a legacy of innovation and growth fueled by robust research and development. The portfolio provides exposure to forward-thinking growth companies not held in the S&P 500 and access to profitable growing companies with strong fundamentals, with sales, earnings and dividend growth rates that significantly surpass that of the S&P 500 and Russell 1000 Growth Indices.
The NASDAQ-100 Index constituents spent considerably more on R&D than the S&P 500 and Russell 1000 Growth indices, with patent contributions ranging across disruptive technologies, such as 3D graphics, natural language processing, cloud computing, virtual reality, big data, cyber security, deep learning and more.
The NASDAQ-100 also boasts strong fundamentals. Since 2009, NASDAQ-100 constituents have generated higher growth rates across revenue, earnings and dividends than those of the S&P 500 and Russell 1000 Growth Indices. NASDAQ-100 companies also show strong brand equity, valuable patents and economies of scale that may drive product demand and pricing power.
The benchmark has exhibited a history of relative outperformance. The NASDAQ-100 has enjoyed win rates greater than 70%, compared to both the S&P 500 Index and Russell 1000 Growth Index. Historically, the longer the investment horizon, the higher the percentage of periods the NASDAQ-100 outperformed a benchmark index.
Investors can now focus on the next generation of NASDAQ-100 innovators through the recently launched Invesco NASDAQ Next Gen 100 ETF (QQQJ). The ETF extends this concept of innovation further by offering access to the “next 100” non-financial companies listed on the Nasdaq, outside of the NASDAQ-100 Index, offering a mid-cap alternative to the NASDAQ-100.
QQQJ offers early exposure to forward-thinking growth companies before they graduate to the NASDAQ-100. Since 2011 54 NGX constituents have “graduated” to the NASDAQ-100 and currently comprise over one third of the NDX index. The ETF’s components exhibit robust innovation and growth fueled by consistent and substantial investment in R&D. Additionally, the Invesco NASDAQ Next Gen 100 ETF tracks profitable growing companies with strong fundamentals, with revenue and dividend growth rates that surpass that of the S&P 400 and Russell Mid-Cap Growth indices.
Financial advisors who are interested in learning more about innovative opportunities can watch the webcast here on demand.
