QTEC Should Outperform Nasdaq In Second Wave Of AI Gold Rush

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BlackJack3D ETF Overview First Trust Nasdaq-100-Technology Sector Index Fund ETF (NASDAQ:QTEC) includes a portfolio of technology stocks selected from the Nasdaq 100 index. The fund implements an ...

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The fund implements an ...</p>\n\n<a href=\"https://seekingalpha.com/article/4702042-qtec-outperform-nasdaq-index-in-second-wave-ai-gold-rush\">Source Link</a>\n\n</div>\n","source":"seekingalpha_fund","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>QTEC Should Outperform Nasdaq In Second Wave Of AI Gold Rush</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nQTEC Should Outperform Nasdaq In Second Wave Of AI Gold Rush\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-07-02 22:12 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4702042-qtec-outperform-nasdaq-index-in-second-wave-ai-gold-rush><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>BlackJack3D ETF Overview First Trust Nasdaq-100-Technology Sector Index Fund ETF (NASDAQ:QTEC) includes a portfolio of technology stocks selected from the Nasdaq 100 index. The fund implements an ...</p>\n\n<a href=\"https://seekingalpha.com/article/4702042-qtec-outperform-nasdaq-index-in-second-wave-ai-gold-rush\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"FT_SY_NQ","symbol_name":"NQ100指数","start_time":0,"source_url":"https://seekingalpha.com/article/4702042-qtec-outperform-nasdaq-index-in-second-wave-ai-gold-rush","article_id":"2448163925","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1976099664/image_1976099664.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2448163925","pubTimestamp":1719929521,"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Why has QTEC underperformed the Nasdaq 100 index in the last 10 years?If we observe the chart above again, we will notice that QTEC actually outperformed the Nasdaq 100 until about 2022. The outperformance gap reached the widest in 2020, but this outperformance gradually diminished. Starting from 2022, the trend reversed, and the Nasdaq 100 index started to outperform QTEC. So, what caused this reversal after 2022?","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":["rate"],"viewcount":null,"language":"en","relate_stocks":{".IXIC":"NASDAQ Composite","QTEC":"First Trust NASDAQ 100 Technology Index Fund"},"translate_title":"QTEC应该会在第二波人工智能淘金热中超越纳斯达克","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{".IXIC":1,"NQmain":1,"QTEC":1},"content_text":"BlackJack3D ETF Overview First Trust Nasdaq-100-Technology Sector Index Fund ETF (NASDAQ:QTEC) includes a portfolio of technology stocks selected from the Nasdaq 100 index. The fund implements an equal-weight strategy to build its portfolio, and rebalances its portfolio four times a year. Despite its focus on technology stocks, QTEC has underperformed the Nasdaq 100 index in the past few years as the mega-cap 8 (eight mega cap tech stocks) contributed most of the returns of the index. QTEC’s equal-weight strategy means it cannot fully enjoy the benefit of the strong returns from these stocks. Fortunately, the returns of these stocks will likely be much more evenly distributed in the second wave of the artificial intelligence gold rush. Hence, QTEC has a chance to outperform the Nasdaq 100 index. For this reason, we are willing to give the fund a buy rating. Fund Analysis A focus on technology stocks QTEC constructs its portfolio by selecting technology stocks from the Nasdaq 100 index. As we know, Nasdaq 100 index consists of 100 largest stocks (excluding financial stocks) listed on the Nasdaq stock exchange. This index is well known for its exposure to the information technology sector but also includes other sectors. Some well-known non-technology stocks in the Nasdaq 100 index include Costco (COST), Honeywell (HON), Moderna (MRNA), Keurig (KDP), PepsiCo (PEP), T-Mobile (TMUS), and Warner Bros. (WBD). QTEC basically excludes these non-technology stocks mentioned above. The result is a portfolio of technology stocks. As we know, technology industry is a fast-growing sector. In fact, this sector’s earnings growth rate is expected to top all other sectors in 2024 and 2025 respectively. As can be seen from the chart below, the consensus earnings growth estimate for information technology sectors in the S&P 500 index are expected to be 28.7% and 22.5% in 2024 and 2025 respectively. Therefore, we expect tech stocks in QTEC's portfolio to also outperform other sectors as well.   MacroMicro But, QTEC’s return still lagged Nasdaq 100 index One would expect QTEC’s focus on technology stocks to yield superior performance than the Nasdaq 100 index. Unfortunately, this is not the case. QTEC's total return in the past 10 years actually underperformed the Nasdaq 100 index. Below is a chart that compares QTEC’s total return to the Nasdaq 100 index in the past 10 years. As the chart shows, QTEC’s total return of 432.2% in the past 10 years were inferior to the Nasdaq 100 index’s 466.4%.   YCharts What caused this underperformance? Why has QTEC underperformed the Nasdaq 100 index in the last 10 years? If we observe the chart above again, we will notice that QTEC actually outperformed the Nasdaq 100 until about 2022. The outperformance gap reached the widest in 2020, but this outperformance gradually diminished. Starting from 2022, the trend reversed, and the Nasdaq 100 index started to outperform QTEC. So, what caused this reversal after 2022? We think the answer is due to QTEC’s equal-weight strategy to construct its portfolio. This means that stocks in QTEC’s portfolio are adjusted and rebalanced once every quarter to ensure that all stocks have the same weight. In contrast, the Nasdaq 100 index implements a market-weight strategy. QTEC’s equal-weight strategy will produce better return than market-cap weight strategy if market-cap growth in the portfolio is much more evenly distributed among all stocks. On the other hand, if growth is limited to only a few stocks, QTEC’s equal-weight strategy will produce inferior result than portfolios that implements market-weight strategy. Perhaps this was the case prior to 2020~2022 where growth in QTEC’s portfolio is much more evenly distributed among all stocks than after 2022. Below is a chart that compares the performance of the mega-cap 8 stocks to the S&P 500 index. These mega-cap 8 stocks include Alphabet (GOOG), Amazon (AMZN), Apple (AAPL), Facebook (META), Microsoft (MSFT), Netflix (NFLX), Nvidia (NVDA), and Tesla (TSLA). As can be seen, these 8 stocks have much better performance relative to the broader market especially after 2020. Therefore, funds that implement market-weight strategy has benefited from the impressive growth of these 8 stocks in the past few. In contrast, QTEC’s equal-weight strategy means that the fund was unable to enjoy the full benefit of their growth. Yardeni Research Equal-weight strategy may benefit again While QTEC underperformed the Nasdaq 100 index in the past, we think there is a chance for reversal. Below is a chart that shows QTEC’s sub-sectors allocation. As can be seen from the chart, software subsector consists about 40.1% of the total portfolio, and this is followed by semiconductors’ 33.5%.   First Trust As we know, technology industry is currently riding on the wave of artificial intelligence and GPTs. In the first wave of this AI gold rush, a handful of chip suppliers such as Nvidia have been the main beneficiary. Nvidia even saw its share price risen by over 600% since the beginning of 2023. It was unfortunate that QTEC’s equal-weight strategy and frequent rebalancing means it was unable to enjoy the full benefit of the rising of Nvidia’s stock price. Fortunately, we think QTEC can benefit in the second wave of the AI gold rush. Unlike the first wave of AI gold rush where it was mostly a handful of semiconductor stocks that benefits, in the upcoming second wave of this AI wave, we think software companies will benefit the most. This is because many software companies will incorporate artificial intelligence into their applications. Since there is a wide spectrum of different applications in the software industry, growth will not be concentrated only on a handful of companies, such as the case in the first wave of the gold rush. It will be much more evenly distributed among different software companies. Since QTEC has a high exposure (40.1%) to these software companies, it should benefit and perhaps even outperform the Nasdaq 100 index. Equal-weight strategy also means higher expenses One disadvantage of owning QTEC is the transaction costs to rebalance its portfolio quarterly. In fact, QTEC’s expense ratio of 0.57% is significantly higher than the 0.2% expense ratio of Invesco QQQ ETF (QQQ) which tracks the Nasdaq 100 index. A simple math calculation, though not accurate, tells us that a 0.37% difference in 10 years will result in a difference of 3.7% in returns. Therefore, QTEC’s higher expense ratio is still worth noting. Investor Takeaway Despite QTEC's higher expense ratio, we like QTEC’s focus on fast-growing technology sector. Its equal-weight strategy to construct the portfolio may not be the best in the past, but has the chance to outperform the Nasdaq 100 index in the second wave of AI gold rush. Therefore, we are willing to give QTEC a buy rating.  Additional Disclosure: This is not financial advice and that all financial investments carry risks. 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