One of the main advantages of Invesco Trust QQQ (QQQ) is its overweighting of technology stocks. Good news: Many market watchers are predicting more upside for the sector this year.
QQQ tracks the widely followed Nasdaq-100 index (NDX), dominated by the technology, communications services and consumer discretionary sectors. These exposures are significant in the current market environment.
“If part of the thesis for further stock market gains is massive central bank liquidity, technology should benefit from this trend, especially if volatility continues to decline,” according to BlackRock. “Since 2008, technology has generally outperformed when financial conditions improve. The average outperformance is around 30 to 35 basis points (bps) per month. In months when volatility, as measured by the VIX index, decreases, the average outperformance doubles. Why? Because long-lived assets – that is, companies where cash flow is in the more distant future – benefit when financial conditions are easy and rates exceptionally low. “
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The growth style may gain momentum as investors have turned to bullish economics and earnings, which has caused many to take a risk-taking stance. With growth stocks showing high multiples, investors can expect companies to maintain a high growth rate.
Many QQQ components use technology to disrupt the industries they are in. These companies use innovation and technology to create competitive advantages in multiple sectors and industries beyond technology. The coronavirus pandemic is also highlighting the opportunities with tech stocks and QQQ.
“The pandemic has accelerated several existing trends. As a result, many habits acquired during the pandemic are unlikely to disappear, ”notes BlackRock. “Online shopping is a good example. Examination of national credit card data reveals an interesting trend. As you would expect, the share of spending going to online retailers increased at the start of the pandemic. Less obvious was the resistance of this trend. Even as lockdowns have eased, the online retailer’s share of the wallet has remained high by the pre-pandemic standard. In other words, even with the return of consumer mobility, many households have come to appreciate the convenience of services such as online grocery delivery.
Finally, the consumer side of technology seems compelling to investors.
“Household technology spending rose by more than $ 100 billion, or 25%, in the six months between May and November. While part of the year-end slump was due to start-of-vacation spending, the trend is clear and has been in place for some time, ”concludes BlackRock.
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The opinions and forecasts expressed herein are solely those of Tom Lydon and may not come to fruition. Information about 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.
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