Mutual Funds

Nasdaq-100 ETF swells to $100 billion

Bloomberg | Updated on May 10, 2020 Published on May 10, 2020

Thirty million job losses, shrinking consumer spending and a projected 16 per cent unemployment rate.

Tech stocks turn higher for the year and an exchange-traded fund (ETF) that tracks the biggest among them has swelled to a $100-billion market value.

None of the economic damage wrought by the coronavirus has deterred investors from piling into the companies that stand out for their strong balance sheets and ability to churn out profits in the stay-at-home world.

Microsoft, Apple and Amazon are each worth more than $1 trillion.

“It’s a sector now that’s just resilient,” said Shawn Cruz, senior manager of trader strategy at TD Ameritrade. “The conditions we’re in right now, companies need to keep operating — they just need to do it remotely. And that benefits a lot of these tech companies.”

In tech stocks, the Invesco QQQ Trust Series 1, which tracks the Nasdaq-100 Index, closed with a market value of more than $100 billion for the first time since it began trading in 1999. The Nasdaq Composite Index turned turned positive for the year, whereas the S&P 500 and the Dow Jones Industrial Average were still down.

Investors are picking technology as a safe corner at a time when the coronavirus pandemic is causing so many uncertainties for global markets.

Tech behemoths, known for their strong balance sheets and high growth, have counterbalanced the gloom and doom affecting many other industries.

With millions of people around the world stuck in their home offices to help contain the outbreak, companies that specialise in remote-working products are becoming a hot spot.

That preference for tech is visible in the ETF world. After posting its best month of inflows since 2001 in March, QQQ added another $3.2 billion in April and $367 million so far in May.

“Investors may recognise that the constituents of QQQ’s benchmark, the Nasdaq 100, are well positioned to capitalise on the current shift to digital working and learning, potential advancements in biotech and healthcare, along with a number of transformative, long-term themes in the marketplace,” said Ryan McCormack, Invesco QQQ strategist.

Despite QQQ’s rally, traders are increasingly looking to bet against the fund. Short interest as a percentage of shares outstanding on QQQ — a rough indicator of bearish bets on the fund — climbed to 5.1 per cent on Wednesday, according to data from IHS Markit. That’s up from about 2.7 per cent on March 23.

“The thing we haven’t seen yet with tech names is how badly advertising is going to be hit,” said Marc Odo, client portfolio manager at Swan Global Investments.

“Those companies are going to have to plug the gaps or their earnings are going to take a hit.”

Still, solid Q1 earnings from Google parent Alphabet, Facebook, Microsoft and Tesla have contributed to momentum — at least for now.

Published on May 10, 2020

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