Investors remain optimistic about the ongoing US technology rally and show a strong preference for ETFs in gaining access to this segment, according to research commissioned by Invesco.
Christopher Mellor, Head of EMEA ETF Equity and Commodities Product Development at Invesco
In March 2021, Invesco surveyed 100 European institutional investors from the UK, Germany, France, Italy, Spain, the Netherlands, and Nordic countries on their outlook for US technology and technology-led stocks over the next three years.
The study found that more than a third (37%) of respondents believe the Nasdaq 100 will perform ‘significantly’ higher than the previous three years, while a further 48% are of the opinion that the index will perform ‘slightly’ higher (as of the end of March 2021, the Nasdaq 100 had returned approximately 110% over the prior three-year period).
The Nasdaq 100 consists of 100 of the largest non-financial companies listed on Nasdaq and is widely seen as a barometer of the health of the US large-cap technology, media, and communications sector, although the index also contains allocations to innovative consumer discretionary (most notably Amazon) and biotechnology companies, among others.
Interestingly, investors were even more bullish on the performance of the mid-cap technology-led segment with a majority (58%) believing the Nasdaq Next Generation 100 Index will outperform the Nasdaq 100 over the next three years. Of this, more than a quarter (29%) think this is very likely.
The Nasdaq Next Generation 100 Index was introduced in August 2020 and comprises the largest 100 Nasdaq-listed companies outside of the Nasdaq 100. As with the Nasdaq 100, the index does not contain financial securities such as banking and investment companies.
Technology stocks currently represent the largest sector exposure with a third (33.7%) of the total index weight followed by consumer discretionary (24.9%), health care (19.4%), industrials (11.6%), and telecoms (5.5%).
When asked why they were bullish on mid-cap technology-led stocks, two thirds (65%) of respondents noted these firms’ focus on new technologies, products, and innovation provide opportunities for growth, while just over half (54%) said their size (smaller-cap) premium compared to the Nasdaq 100 could lead to outperformance.
The Nasdaq Next Generation 100 Index appears to have passed the litmus test with four-fifths (81%) of respondents indicating they believe it will be popular with institutional investors.
Christopher Mellor, Head of EMEA ETF Equity and Commodities Product Development at Invesco, said: “Firms listed on the Nasdaq 100, such as Amazon, Alphabet, Microsoft, Tesla, and Zoom, have dominated much of the global business narrative for the past decade – and still are. Through the Nasdaq Next Generation 100 Index, investors can gain exposure to a new generation of fast-growth, dynamic, tech-focused businesses that could dominate over the next decade. It is unsurprising that institutional investors see strong opportunities for growth.”
According to Invesco, the survey also revealed that three-quarters of respondents believe ETFs will be more popular than other investment vehicles for gaining access to technology-led firms such as those comprising the Nasdaq Next Generation 100 Index.
Mellor added: “ETFs represent a highly efficient, cost-effective means to gain exposure to such markets and we firmly believe they will become the vehicle of choice for many investors.”
Invesco offers three ETFs in Europe that target stocks listed on Nasdaq. Two of the funds provide either physically or synthetically replicated exposure to the Nasdaq 100 – namely the Invesco Nasdaq 100 UCITS ETF (EQQQ LN) and the Invesco Nasdaq-100 Swap UCITS ETF (EQQS LN) which come with expense ratios of 0.30% and 0.20% respectively. The third fund is the Invesco Nasdaq Next Generation 100 UCITS ETF (EQQJ LN) which uses physical replication to track the Nasdaq Next Generation 100 Index and costs 0.25%.