The Invesco QQQ Trust (NASDAQ: QQQ) is trouncing other broad market ETFs this year and has been for some time. Much of the explanation for that sizable out-performance is attributable to the NASDAQ-100 Index’s overweight position in technology stocks.
The NASDAQ-100, QQQ’s underlying benchmark, allocates nearly 48% of its weight to tech stocks, which is well above the weights to that sector found in the S&P 500 or Russell 1000 indexes.
Obviously, many tech stocks are classified as growth names and that’s to QQQ’s benefit, but the durability and quality traits found in the sector are also beneficial to investors embracing NASDAQ-100 ETFs.
Over the past year, “technology stocks had the highest Return on Investment at 44.84%. With an impressive ROI, the sector is leading the resurgence of the stock market,” according to BuyShares.com.
The next best sector based on ROI over the past year was healthcare at 20.23%. That sector accounts for 6.38% of the NASDAQ-100 and QQQ.
There’s More
The growth style, though, may be gaining momentum as investors turned to upbeat economic and earnings data, causing many to adopt a more risk-on attitude. Since growth stocks show high multiples, investors may expect that the companies will sustain a high growth rate. In contrast, traders may feel that firms with low multiples would continue to experience tepid growth.
QQQ allocates a combined 89% of its weight to the technology, communication services, and consumer discretionary sectors. Obviously, what’s inside QQQ goes a long way toward explaining the fund’s returns, but what’s left out of the fund also helps.
Data indicate “energy stocks and the real estate stocks have the worst ROI at -35.5% and -10.66% respectively, making them the biggest loss-making sectors. On the other hand, the crucial financial stocks had an ROI of -3.72%,” according to Buy Shares.
That’s bad news but it’s not meaningful to NASDAQ-100 investors because the index and QQQ feature no exposure to any of those three sectors.
Bolstering the case for tech is that the sector isn’t being hindered by the coronavirus pandemic. It’s benefiting from it.
“From the data, most stocks still have lower ROIs even as businesses and investors are faced with the uncertain long-term economic impact of the pandemic. However, tech stocks have remained resilient. The current economic downturn has left them relatively unscathed because investors see tech firms benefiting from new trends such as remote working, cloud computing, and more telecommunications infrastructure, which have only been accelerated by the pandemic,” according to BuyShares.
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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.