The Nasdaq-100 Index (NDX) is again setting a torrid pace this year, extending lengthy out-performance of rivals such as the S&P 500. The technology sector is a big reason why NDX is dominating traditional broad-based benchmarks.
Investors looking for even more tech exposure with their Nasdaq-based investments can turn to the First Trust Nasdaq-100 Tech Index (NasdaqGM: QTEC), which tracks the NASDAQ-100 Technology Sector Index.
“The index consists of companies in the NASDAQ-100 Index classified as Technology according to Industry Classification Benchmark (ICB),” according to First Trust. “The index is reconstituted once a year based on the NASDAQ-100 reconstitution in December, but replacements may be made during the year if there is a replacement in the NASDAQ-100 Index.”
QTEC is an equal-weight ETF, so it’s dominated by the likes of Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT), but that’s not weighing on its performance as highlighted by a 12-month gain of 26%.
Tech’s ongoing leadership is stoking concerns that markets could be in for a repeat of the 2000 tech bubble burst. Good news for QTEC investors is that tech is a much different ballgame today.
“For investors concerned about the relentless rise of technology stocks, it is important to ask whether the early ’20s are becoming a repeat of the late ’90s?,” according to BlackRock. “Tech outperformance is not based on hype or clever mascots but on three dynamics: earnings strength, accommodative monetary policy, and accelerating secular trends.”
QTEC has multiple tailwinds to extend the recent upside.
“Capital spending in the information technology sector has more than doubled during the past decade, primarily due to the cost of making semiconductors and building cloud-computing networks, according to an analysis by S&P Global Market Intelligence.”
The rise of cloud computing has never been more apparent amid the Covid-19 pandemic. With social distancing measures in place, a lot of businesses have their heads in the clouds—that is, using cloud computing as a primary way to run their core businesses—something that will benefit cloud computing ETFs, such as QTEC. Moreover, earnings growth in the tech sector is stellar.
“The main reason tech companies continue to dominate: Earnings and margins remain remarkably resilient. This year’s estimates for the S&P 500 Technology Sector suggest earnings growth of nearly 19%. One reason earnings have held up: Many of the industries in technology, notably software, continue to maintain sky-high margins, despite the disruptions caused by COVID,” according to BlackRock.
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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.