Much has been written in the media describing the strong momentum behind mega cap technology stocks. In this paper, we dissect some of the contributors underlying this momentum, while also suggesting theremay be better long-term risk/reward opportunities in other areas of technology.
We attribute much of the performance for these names to strong fundamentals, asset flows, and momentum. Year-to-date, technology ETFs have seen incremental asset flows of over $7bn with the top 10 largest ETFs representing almost $55bn in AUM.1 We posit that the performance has attracted asset flows, which has created incremental demand for the underlying ETF holdings and subsequently added to performance. This becomes a positive feedback loop wherein good performance attracts assets leading to better performance.
An examination of the top 10 largest technology ETFs shows a strong bias for mega cap technology stockswith the majority having significant percentage positioned in GOOG(L), APPL, FB, and MSFT.