Analyst Paul Weisbruch highlights a lesser-known technology focused ETF that’s been drawing big inflows as of late, possibly due to its modified equal-weighted composition and more specific focus on the tech world.
We spoke about the heaviness of Large Cap Technology names in general that has occurred since the results of last week’s U.S. Presidential election have come in, with stalwarts in the Nasdaq-100 and linked tracker QQQ (PowerShares QQQ, Expense Ratio 0.20%, $38.5 billion in AUM) like AAPL, MSFT, AMZN, FB, and GOOG largely taking it on the chin.
While there has been a bit of a relief rally this morning in early trading. These names have clearly been holding the market-cap weighted Nasdaq-100 down due to their weakness, and we note that more than 51% of the overall portfolio of one hundred stocks resides in the top ten holdings in the portfolio. AAPL for example carries a 10.98% weighting, followed by MSFT (8.38%), AMZN (6.72%), FB (5.46%), and the “Two Google’s” which are of course Alphabet Inc. C, (GOOG, 4.84%), and Alphabet Inc. A (GOOGL, 4.29%) and one can pull up a quick chart in any of these individual names to witness the relative carnage that we have seen in many cases here post-election.
Interestingly, a fund that we have mentioned in the context of the limitations of market-capitalization weighted indices in the past in this column, and how it relates to QQQ and the Nasdaq-100, QTEC (First Trust NASDAQ-100 Technology Sector, Expense Ratio 0.60%) has reeled in more than $660 million in recent sessions thanks to creation demand. It is important to emphasize the fact that this fund does not employ the common “market-capitalization” index weighting scheme but uses a modified equal-weighting strategy, which makes the underlying basket at least at the top end of the portfolio look starkly different than that of say QQQ.
Mostly gone from the top ten weightings are the mega-cap technology names like the aforementioned mammoths, as they are relegated to equal-weighting in the portfolio and put on even footing with lesser known names in the Nasdaq-100 such as AKAM (3.79%), NXPI (3.32%), NVDA (3.15%), CHKP (3.13%), and QCOM (3.03%). In fact, the only top-ten weighted member of the Nasdaq-100 market capitalization weighted index that is also in the top-ten weightings of QTEC is #10 MSFT (2.91%). It is also important to note that the Nasdaq-100 is of course not “Technology-exclusive” but has tended to be Technology-centric in terms of its index weighting and composition in the past. So those looking at QTEC may very well be looking to make a Technology equity sector specific play as opposed to a Nasdaq-100 play, and the modified equal-weighting that the fund offers may also be appealing to those looking to lessen traditional Nasdaq market-cap exposure.
QTEC shares rose $0.62 (+1.23%) to $50.90 in Tuesday afternoon trading. Year-to-date, QTEC has now gained 19.39%, more than five times the return of the QQQ in the same period.
Disclaimer: The content of this article is excerpted from a daily newsletter from Street One Financial. While ETF Daily News may edit the contents and add a relevant title to the piece, the author, Paul Weisbruch, does not endorse or recommend any issuer or security mentioned herein.
Paul Weisbruch is the VP of ETF/Options Sales and Trading at Street One Financial. Prior to joining the team at Street One, Paul served as the Director of RIA and Institutional ETF Sales at RevenueShares ETFs from December 2007 until November of 2009. Before RevenueShares, Paul was employed by Susquehanna International Group from 2000 until 2007 serving in roles including OTC/NYSE Institutional Block Trading, Nasdaq/OTC Market Making, ETF/Derivatives Intelligence and Strategy, Algorithmic Trading, as well as acting as the PHLX Floor Specialist in the ETFs, SPY and DIA.Paul has been actively involved in the ETF space from both a product and trading standpoint since 2000. Additionally, Paul has well forged relationships with national RIAs, institutional pension fund managers and consultants, mutual fund and hedge fund managers, and also the ETF media. Co-authoring the “S1F ETF Daily” since 2009, the daily piece has become a must for many portfolio managers in the ETF space, with segments regularly appearing in the likes of Barron’s, WSJ, and ETFTrends.com for instance.
He holds his Series 4 (Registered Options Principal), 6, 7, 55 (Equity Trader), 63, and 65 licenses. He graduated from the University of Pittsburgh (B.S. – Economics), graduating magna cum laude, and has an MBA from Villanova University.