This article was originally published on ETFTrends.com.
Technology stocks and sector-related exchange traded funds are an important component in any long-term investment portfolio, enhancing overall returns and providing exposure to some of the fastest growing names in the economy.
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During the recent annual ETF Trends Virtual Summit (available On Demand for CE Credit), an online virtual conference environment where financial advisors learned about current ETF issues, Dave Gedeon, Head of Research and Development at Nasdaq, highlighted the importance of technology companies in a diversified investment portfolio.
On the panel 'Innovative Industries Leading ETF Strategies and the Technology Revolution,'' Gedeon discussed the tech-heavy Nasdaq-100 Index, which has been a go-to for investors seeking broad market exposure with a big emphasis on the U.S. technology segment.
The underlying Nasdaq-100 includes 100 of the largest domestic and international non-financial companies listed on the Nasdaq Stock Market based on market capitalization, with a 61.1% tilt toward information technology names and even its 22.3% weight in consumer discretionary includes innovators like Amazon 9.4%, Netflix 1.8% and Tesla 0.7%.
Gedeon pointed to the long-term outperformance of these tech names that has contributed to the ongoing rally in U.S. equities.
For instance, looking at the past five-year returns, the clouding-computing theme has returned 129.3%, the Nasdaq-100 returned 145.7%, cybersecurity stocks returned 116.2%, Nasdaq technology companies returned 179.1%, internet stocks returned 195.0% and robotics returned 124.6%.
In contrast, the S&P 500 returned 76.4% over the period.
Contributing the rapid growth of technology companies, the tech theme has broadened and is prevalent in many aspects of our daily lives and the wider economy.
"From day to day tasks to social interaction, each has an important influence on everyday life," Gedeon said.
"Tech stocks have evolved from creating new and niche consumer products to a group of companies upon which every industry and sector have become dependent," Gedeon added.
For instance, Gedeon singled out companies like Apple, Amazon, Intel and Microsoft as global leaders in the technology sector that have produced high-demand consumer products.
The rapid growth has also contributed to the technology segment's bigger prominence in the U.S. equity market. The Nasdaq-100 from year-end 2012 to 2017 has substantially increased in market capitalization to $6.5 trillion from $3.1 trillion and saw earnings expand to $204 billion from $137 billion.
As the technology names mature, many are beginning to grow dividend payouts to loyal investors. The Nasdaq-100 has increased yields most years between 2003 and 2017. QQQ shows a 0.78% 12-month yield.
Investors, though, are probably more interested in this growth-themed segment's performance. Since 2007, the Nasdaq-100 has outperformed the S&P 500 by 150% cumulatively with a +1.3% risk.
Click here to watch the 'Innovative Industries Leading ETF Strategies and the Technology Revolution' Virtual Summit panel On Demand (CE Credit available to financial advisors).
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