Mega Cap Companies Could Continue to Thrive Past the Pandemic

Stay-at-home orders, social distancing, and remote work have all fed into a funnel of opportunities in technology to help facilitate human interaction. As such, the tech-focused mega cap companies could continue to thrive well past the pandemic, especially the big names like Zoom and Amazon.

“When the COVID-19 pandemic suddenly created that world, tech was ready,” a MarketWatch report noted. “Zoom Video Communications Inc. ZM scaled from hosting about 10 million meeting participants a day to 300 million, adding online happy hours and Taco Tuesday streams with grandparents to the business meetings for which it was known before the pandemic.”

“Netflix Inc. NFLX, 1.79% added more than 25 million customers in a few months, and pushed out fresh content like “Tiger King” to keep customers entertained while they were stuck at home,” the report added. “Amazon.com Inc. AMZN, 7.94% leveraged a giant infrastructure network it had spent years building to ship needed goods to customers’ homes and offer companies cloud-computing power necessary to scale their own services.”

“We went from a country that did business one way and basically overnight flipped a switch to do it another way, and we had the infrastructure to make that transition without a lot of breakages because of the vision of some really impressive people and companies,” said Brendan Connaughton, the founder and managing partner of Catalyst Private Wealth in San Francisco.

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Mega Cap Exposure via ETFs

Exchange-traded fund (ETF) investors looking to take advantage of mega caps can look to the Principal U.S. Mega-Cap Multi-Factor Index ETF (USMC). USMC seeks to provide investment results that closely correspond, before expenses, to the performance of the Nasdaq US Mega Cap Select Leaders Index.

Under normal circumstances, the fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities that compose the index at the time of purchase. The index uses a quantitative model designed to identify equity securities of companies in the Nasdaq US 500 Large Cap Index (the “parent index”) that have the largest market capitalizations, with higher weights given to less volatile securities.

Another fund to consider is the Vanguard Mega Cap Growth Index Fund ETF Shares (MGK). The fund seeks to track the performance of the CRSP US Mega Cap Growth Index.

The fund employs an indexing investment approach designed to track the performance of the index. The index is a float-adjusted, market-capitalization-weighted index designed to measure equity market performance of mega-capitalization growth stocks in the United States. The Advisor attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.

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