Over the Last Four Months the Technology Sector has Outpaced the Broader Market
By: Dave Gedeon, Head of Research & Development, Nasdaq Global Information Services
Something particularly noteworthy happened in July that appears to have been overlooked by much of the market: technology stocks regained their mojo and began to outperform the rest of the market in a serious way. From July 1 to November 7, tech stocks have outpaced the broader market.
The Nasdaq-100 Tech Sector Index (NDXT), which is the technology stocks of the Nasdaq-100 equally weighted, has had significant outperformance over the Nasdaq US Large Cap Index (NQUSL) from July to present.
The recent market leadership is also showing up in Nasdaq’s Dorsey Wright relative strength analysis. The First Trust Focus Five Model lists the ETF tracking the Nasdaq-100 Tech Sector Index as the number one-ranked ETF and the Dynamic Asset Level Investing (DALI) tool analysis of US sectors shows technology as the clear number one ranked sector.
The 2016 outperformance has been created in this four-month period and the 36 securities within NDXT have clearly performed well. Thirty two of the 36 securities have positive performance and the top 10 have averaged a whopping 31% return in the period between July 1 and November 7.
The Nasdaq-100 Tech Sector Index has also been outperforming other tech indexes and the excess return is not just attributed to the equal weighted methodology. The S&P 500 Equal Weight Technology Index also lags behind the Nasdaq-100 counterpart.
There are a few specific names in the Nasdaq-100 and a few key weight differences that have really generated the outperformance. Of the top 10 performing securities in NDXT, the average weight difference between NDXT and a large cap benchmark technology sector index is 2.3%. Two key examples are NXP Semiconductors and NetEase Inc, both of which are Nasdaq-100 companies but not included in US Large Cap technology indexes. NXP is subject to takeover by QUALCOMM for a sizable premium and NetEase has been a steady performer all year.
Historical Look at the Nasdaq-100 Technology Index
Back ten years, the Nasdaq-100 Technology Index has included a relatively stable number of securities, ranging from 37 at the low end to 44 at the high end. The list includes behemoths like Apple, Facebook, Alphabet, Microsoft and others as well as some smaller tech names like Mircron Technology and Lam Research Corporation.
Over the decade, the index has matured and grown with the securities increasing dividend payments at a very high rate. This can be seen in a number of ways but the easiest is by looking at the over six-fold increase in dividend yield from 0.2% at year-end 2007 to 1.32% as of September, 30, 2016. Given the equal-weighted nature of the index, the advent of Apple’s dividend program in 2012 did not have as sizable an impact as it had in other market cap weighted benchmarks. It took true increases and establishments in dividends by a more sizable number of companies in the mix to cause this jump.
Summary
Over the last four months the Technology sector has outpaced the broader market, regaining its glory as the leader of the market. The Nasdaq-100 Tech Sector Index has led the pack with higher performance than competing technology benchmarks mentioned here, and it was not just due to its equal weighted methodology with the majority of the names having significant positive returns, the top ten having an average 31% return since July 1.
The names in the index, which have increased earnings, began to execute on and increase dividend policies over the last decade while growing top-line revenue are the reason for this recent outperformance and just as impressive is the 10-year outperformance
For more information, please click here and a member of our team will reach out to you directly.
Nasdaq® is a registered trademark of Nasdaq, Inc. The information contained above is provided for informational and educational purposes only, and nothing contained herein should be construed asinvestment advice either on behalf of a particular security or an overall investment strategy. Neither Nasdaq, Inc. nor any of its affiliates makes any recommendation to buy or sell any security or any representation about the financial condition of any company. Statements regarding Nasdaq-listed companies or Nasdaq proprietary indexes are not guarantees of future performance. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results. Investors should undertake their own due diligence and carefully evaluate companies before investing. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED.
© 2016. Nasdaq, Inc. All Rights Reserved.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
