Despite the coronavirus pandemic, the technologically tilted Nasdaq Composite has been the bright spot in the equities market as a heavier reliance on tech becomes more apparent in this new normal. This should feed into strength for the Principal Price Setters Index ETF (PSET) that looks at the top Nasdaq players with the best pricing power.

PSET seeks to provide investment results that closely correspond, before expenses, to the performance of the Nasdaq US Price Setters Index. Under normal circumstances, the fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies that compose the index at the time of purchase.

The index uses a quantitative model designed to identify equity securities of mid- to large-capitalization companies in the Nasdaq US Large Mid Cap Index (the “parent index”) that exhibit high degrees of pricing power. First off, the index filters out 550 of the top companies within the index based on market capitalization.

Ultimately, the funds look for companies with favorable pricing power. In order to do this, it looks at the following characteristics: high-quality metrics, a high degree of profitability, brands with a strong market presence, and a bulletproof business model that can withstand various market cycles.

All holdings are then rebalanced annually in March. As of July 4, there are 150 holdings that include familiar names like Microsoft.

PSET offers investors:

  • Active index design: Seeks to identify price-setting companies with the ability to maintain margins through market cycles
  • Rules-based framework: Scores and ranks companies – aiming to overcome the tendency of investing in familiar and well-known companies, a common pitfall for active large-cap investors.
  • Strong factors with strong results: Portfolio construction favors companies with the strongest quality characteristics and goes beyond cap weighting for further diversification.

Fresher Highs for the Nasdaq

With the way the Nasdaq Composite has been gaining momentum as of late, PSET can definitely benefit. The Nasdaq has been riding the wave of positive jobs data in June despite the coronavirus pandemic.

The economy added 4.8 million nonfarm payrolls based on June’s numbers from the Bureau of Labor Statistics. That went 1.8 million beyond the consensus economist forecast.

Additionally, the unemployment rate fell to 11.1%, which came in lower than the economist forecast of 12.5%. That number was also over 2 percent lower than May’s 13.3% unemployment rate.

“High-frequency data suggests that the labor market strength had started to wane later in the month, perhaps as households and businesses grew increasingly cautious about the rise in infection rates,” said Seema Shah, chief strategist at Principal Global Investors.

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