The PowerShares QQQ (NasdaqGM: QQQ), which tracks the tech-heavy Nasdaq-100 Index, is not a dedicated technology exchange traded fund, but it is one of investors’ preferred avenues for accessing that sector. However, investors have recently been getting skittish about technology stocks and QQQ is feeling those effects.
Stocks such as Apple (NASDAQ: AAPL), Google parent Alphabet Inc. (NASDAQ: GOOG), Facebook Inc. (NASDAQ: FB) and Microsoft Corp. (NASDAQ: MSFT) are pivotal to QQQ’s performance. That quartet combines for over 39% of QQQ’s roster. Overall, QQQ allocates 60.4% of its weight to the technology sector.
“Investors yanked almost $4 billion from the $56 billion PowerShares QQQ Trust Series 1 ETF in the five days ended Feb. 9, outpacing redemptions at the depths of the financial crisis,” reports Bloomberg. “The SPDR S&P 500 ETF Trust, the world’s biggest fund, saw a record $23.6 billion of outflows.”
Bearish traders can prepare for a possible decline in the Nasdaq-100 with the ProShares UltraShort QQQ (NYSEARCA: QID). QID attempts to provide double the daily inverse returns of the Nasdaq-100 Index.
QQQ features exposure to a wide array of technology companies, including technology hardware, storage, and peripherals; software; diversified telecommunication services; communications equipment; semiconductors and semiconductor equipment; internet software and services; IT services; electronic equipment, instruments and components; and wireless telecommunication services.
“Trading volume for the tech ETF, which tracks the Nasdaq 100 Index, jumped to more than 500 million shares over the five tumultuous trading sessions, the most since August 2011,” according to Bloomberg.
Catalyst remain for the high-flying tech sector. For example, earnings growth, rebound in operating margin and increased capital spending have reinforced the sector outlook. According to Fidelity Investments, the technology sector exhibits three positive indicators in the second quarter, including a positive outlook in the current business cycle, improving fundamentals and attractive relative strength.
Additionally, some analysts opine that the benchmark’s significant technology overweight leaves it vulnerable should tech stocks fall out of favor. Due to tech’s ascent this year, QQQ’s exposure to the sector has increased while its consumer discretionary weight has been mostly steady.
For more news and strategy on the Technology market, visit our Technology category.
Tom Lydon’s clients own shares of QQQ, Apple, Facebook and Microsoft.