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Why the Nasdaq Isn’t a Particularly Good Investment

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Ruth Saldanha: Many investors look at the major U.S. indices, the S&P 500, the Dow Jones Industrial Average and the NASDAQ, and think that if they invest in one of those three, they’re good to go. But we think that one of those is not like the others. According to us, the NASDAQ is not a particularly good investment. Morningstar’s Ryan Jackson is here to tell us why. Ryan, thank you so much for being here today.

Ryan Jackson: Thanks for having me, Ruth. Excited to be here.

The Nasdaq 100 Looks Out for the NASDAQ, Not the Investor

Saldanha: So what are your thoughts on the Nasdaq-100 Index?

Jackson: So the Nasdaq-100 is a very interesting index. This is the benchmark for Invesco QQQ Trust. We have a Morningstar analyst rating of neutral on that fund, which means we don’t think this fund will meaningfully outperform its category index, in this case the Russell 1000 Growth on a risk adjusted basis over the long term. So when you think about the Nasdaq-100 Index construction, really all it’s doing is taking the 100 largest non-financial stocks that are traded primarily on the NASDAQ exchange and weighting them by their market capitalization. On the surface it seems like a very harmless approach, but there are some really big problems that spring from this tactic.

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First and foremost, it really does not make much sense to select, include or exclude stocks based on where they trade. You know, it’s very common to see fund’s select stocks or narrow their selection universe based on some set of investment criteria, but these are almost always backed by something that resembles some sort of economic rationale. That is really not the case here, where stock trades has no bearing on its investment merit. And we see this as almost more of an effort by NASDAQ, the index provider, to promote the business of NASDAQ, the exchange provider. I kind of equate this to ordering food at a restaurant that exclusively shops for ingredients at the grocery store right next door. You know, it might be more efficient, it might be better for their business, but at the end of the day the finished product might be missing something that you kind of have to venture outside the lines for.

Another big drawback to the Nasdaq-100 Index and Invesco QQQ Trust is that we have some pretty meaningful sector concentration here. Tech is obviously the best known technology stocks represented about half of the portfolio at the end of September. But you’ve also got some fairly sizable tilts towards consumer discretionary stocks and communication services stocks, each of which represented about 16% of the portfolio at the end of September. On the other hand, QQQ does not hold any real estate, energy, financials or basic materials stocks. So while these tilts are pretty common for growth funds. This fund takes it a little bit too far and could leave some investors with some undesirable outcomes like we’ve seen so far this year when it’s lost about one-third of its value and finished in the bottom half of the large growth category.

You’re Missing Some Big Stocks if You Buy Only the Nasdaq – Even in Tech

Saldanha: I’d like to follow up on a couple of things you said. First up, what are some of the notable exclusions to the index?

Jackson: Yeah. So, I touched on a little bit, but there are really two main reasons that we would see large stocks that meet the size criteria excluded from the Nasdaq-100.

Number one, it’s automatically excluding any financial stocks. The financial sector isn’t the largest part of the U.S. market, but it definitely includes some heavy hitters. Berkshire Hathaway (BRK.B) comes to mind. That was the 6th largest stock in the U.S. at the end of September. And then some of those bulge bracket banks here, you know, Bank of America (BAC), JPMorgan (JPM), you will not find in this portfolio either.

The other reason that we would see stocks excluded from the index is because they do not trade primarily on the NASDAQ exchange, you usually find them on the New York Stock Exchange. You know, this leads to some notable exclusions. You’ve got your big health care firms, some of which don’t make the cut, Johnson & Johnson (JNJ), United Health Group (UAHC), couple of big energy players like ExxonMobil (XOM) or Chevron (CVX), names that this fund certainly would have really liked to have so far this year.

And then there are even some surprises that you don’t find in this portfolio. You know some tech stocks like Salesforce (CRM), Oracle (ORCL), IBM (IBM). You’d think these would be good candidates to fit in the tech heavy NASDAQ, but because they primarily trade on the New York Stock Exchange, they are not eligible for inclusion here. So this kind of just reinforces that the Nasdaq-100, while we think of it as a tech index, doesn’t necessarily fit that peer mold.

The Nasdaq 100 Isn’t the Best Tech Index

Saldanha: I want to talk a little bit more about that? Because investors often use the Nasdaq-100 Index as a shorthand for a tech basket. You went into it a little bit, but could you expand and tell us why this is not such a good idea?

Jackson: Yeah, it’s hard to say exactly how NASDAQ emerged as the go to tech option for investors. I think we’d have to go back and trace through a couple of decades of trading and investing history to find that out. But for me, it seems to me like an issue of liquidity more so than anything else.

Invesco QQQ Trust is an enormous ETF entered this year with over $200 billion in AUM and that’s something that’s very easy for investors and traders to easily get in and out of and that’s certainly an asset in the investing world. How it exactly got to that size? Well, it’s had, you know, over 2 decades to get there. This is a fund that launched in 1999. You know, that was very early on in the ETF days. Actually wasn’t the first tech ETF to hit the market or the first tech fund by any stretch, but it was very, very cheap, comparatively speaking back then. It was cheaper than a lot of tech options and by the time the rest of the herd kind of caught up to them on a cost basis.

They had built up quite a big following and quite a big investor base. So I think that legacy of both being NASDAQ the kind of tech brand and that early on just establishing themselves as number one it’s been a hard legacy brand for them to shake.

Where Should You Invest?

Saldanha: So finally what are some alternatives for investors who do want exposure to American tech.

Jackson: Yeah, for technology alone, Invesco QQQ Trust is not a perfect tech fund. You know, we’ve touched on this a little bit. So if you want to look elsewhere, I think the best pureplay tech fund on an ETF basis to go to it would be Technology Select Sector SPDR ETF that trades under the ticker XLK. You know this is a very cheap tech option. All it does is take all of the technology firms in the S&P 500 and weight them by market capitalization. And by taking such a sensible simple approach, it’s able to charge a very low fee. So this is a very low cost, investor friendly option.

Elsewhere it’s worth noting that the large growth market as a whole is very, very tech heavy as it is right now. So investors hoping for a little bit of tech exposure without necessarily going all in can look to something like Vanguard Growth ETF, ticker VUG, or iShares Russell 1000 Growth ETF, ticker IWF. Even these are, you know, more broadly diversified growth strategies, they’re still going to have, you know, between 40% and 50% of that portfolio stashed in tech. So investors would certainly still be getting their technology fix.

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Abu Dhabi Hosts Annual Investment Meeting May 2023

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ABU DHABI, United Arab Emirates — Abu Dhabi will host the 12th edition of the Annual Investment Meeting from 8 to 10 May 2023, which will take place under the theme of “The Investment Paradigm Shift: Future Investment Opportunities to Foster Sustainable Economic Growth, Diversity, and Prosperity”.

At a press conference held today in Abu Dhabi, the announcement of the launch of AIM Global 2023 which is supported by the Ministry of Industry & Advanced Technologies, with the Abu Dhabi Department of Economic Development (ADDED) as a lead partner was made in the presence of H.E. Dr. Thani bin Ahmed Al Zeyoudi, Minister of State for Foreign Trade, Vice Chairman of the UAE Industry Development Council and H.E. Mohamed Ali Al Shorafa, Chairman of ADDED.

AIM Global 2023 pillars will discuss the global capital market transformation, ways to improve the flexibility of global supply chains to benefit from growth opportunities, and the Fourth Industrial Revolution & AI technologies in the years to come.

AIM will also address new trends in the current global digital transformation that’s being experienced by developing & developed economies. AIM Global 2023 will feature many sessions & workshops that discuss vital topics, including Future Cities, how to use innovative technologies to address the increasing demands, the business sector’s ability to keep abreast of the fast changes, and the future role of Startups & SMEs.

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H.E. Dr. Thani bin Ahmed Al Zeyoudi, lauded AIM’s ability to change its activities to keep abreast of the new changes in the global economy and praised AIM Global 2023’s gathering of all investment stakeholders in an effort to overcome the current obstacles to achieve sustainable economic development & prosperity for the world via several paths, including Digitization, Sustainability, Industrialization, and Free Trade.

H.E. Mohamed Ali Al Shorafa said: “We’re pleased to host AIM 2023 in Abu Dhabi, which has established its position as a preferred destination for business & investments due to its proactive, open approach in dealing with changes. AIM is a suitable platform to discuss new trends and ways to deal with changes and developments in the global economic landscape.”

AIM will comprise several features, including the Exhibition, Investment Roundtables, Investment Destinations Presentations, Investment Awards, Startups Awards, Investors Hub and G2G, G2B & B2B Meetings.

*Source: AETOSWire

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AI will continue to attract investment in near future in the healthcare industry

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Artificial intelligence (AI) was seen as one of the top current investment priorities and was thought to continue to attract investment in the healthcare sector in the upcoming two years, according to GlobalData’s latest report ‘Digital Transformation and Emerging Technology in the Healthcare Industry – 2022 Edition’.

In this survey-based report tracker, digital media was prioritised as a top current investment target, with 53% of surveyed respondents confirming that their companies are currently investing in this technology. It was followed by AI, social media and big data (Figure 1). Compared with last year’s data, digital media saw the biggest increase in current investment, up by 22% from last year. AI (+9% from 2021), social media (+8%) and big data (+5%) have also gained since last year, besides trending as very popular technologies for investment priorities for several years. Their combined usage can release synergetic power and potential that could be disruptive to the healthcare sector.

While digital media was selected as the number one current investment target, the percentage of companies investing in this technology is expected to drop by 16% over the next two years. This would likely be due to the current inflation and rising costs, which contribute to a gloomy investment environment. In the next two years, the surveyed healthcare industry professionals believed that their companies will prioritise AI as the main investment target (figure 2).

Having topped the chart as the most attractive investment target since 2018, AI is a rather versatile technology that can be applied in a wide spectrum of processes in the pharmaceutical value chain, making processes faster and more efficient; eventually saving time and labour costs.

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The technology has a multititle of applications; for example, companies like Exscientia are using AI to help their pharmaceutical clients analyse vast data sets to identify potential drug targets in a shorter time. K Health, in its AI-based telehealth app, is using AI and big data to help users access accurate information on their symptoms and connect with physicians; BioSymetrics is using AI and machine learning to provide a platform and models to help pharmaceutical companies to identify targets for drug discovery; while Bayer’s AI-enabled Calantic™ Digital Solutions platform, which combines AI with Cloud computing, is used to provide more structured tasks and more improved workflow, to ease workload and pressure for radiologists.

The new digital era has been driving the uptake of digital technologies. Technologies like AI are expected to bring disruptive power to and revolutionise processes within the healthcare sector. There has been an increasing number of successful AI-use cases in the healthcare industry that support a growing trust in AI. AI’s potential is substantial – not only limited to shortening the time and reducing cost in the drug discovery process, or providing healthcare professionals with faster and more accurate diagnoses.



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Responsible Investment Industry in the Midst of Remarkable Evolution

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TORONTO — The responsible investment industry is in the midst of a remarkable evolution, according to new data from the 2022 Canadian Responsible Investment (RI) Trends Report. Released today by Canada’s Responsible Investment Association (RIA), the report tracks the national trends and outlook for RI, which refers to investments that incorporate environmental, social, and corporate governance (ESG) issues into the selection and management process.

This year’s report confirms that RI’s recent momentum is giving way to demand for sophistication and more vigilant reporting, signaling a maturing industry. Over the past two years, the rush into RI claims has been met by forces both external and internal to the financial industry, including the reputational and legal risks associated with greenwashing and lack of clarity around ESG industry terminology and disclosure requirements.

With its updated methodology, the report affirms that RI is entrenched in Canada, with reported assets under management at $3 trillion, and 94% of respondents using ESG integration as an RI strategy. This marks the emergence of a reliable baseline for RI market share and demonstrates that ESG Integration is a fundamental tool in Canadian investors’ decision-making.

“Greater vigilance is redefining the ‘floor’ of RI assets under management. Increased clarity and alignment are necessary to shape the slope and raise the ceiling,” said Patricia Fletcher, CEO of the RIA. “RI is here to stay, but we have work to do with everyone in the investment ecosystem to get the next steps right in order to propel further growth.”

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Growth expectations overall remain strong with 90% of respondents anticipating moderate to high levels of growth over the next two years. The demand for sophistication and vigilance is further reflected in investors’ future outlook, with respondents citing the top three potential deterrents to RI growth as: (1) mistrust or concerns about greenwashing, (2) a lack of standardized ESG disclosure frameworks/standards, and (3) lack of reliable data.

The report found an increase in the prevalence of all other RI strategies in addition to ESG integration, including corporate engagement, positive and negative screening, and thematic and impact investing, further pointing to the growing RI sophistication of Canadian investors. Respondents cited risk management as their top motivation for considering ESG factors.

Additional Highlights

  • Survey respondents reported the top three reasons for considering ESG factors are: (1) to minimize risk over time, (2) to improve returns over time, and (3) to fulfill fiduciary duty.
  • The three most prominent RI strategies by AUM are: (1) ESG Integration, (2) Corporate engagement & shareholder action, and (3) Negative/exclusionary screening.
  • Climate change is an overwhelming concern for responsible investors–-who also believe it is the greatest driver for growth over the next two years.

View the report here.

Quotes from 2022 Canadian RI Trends Report Partners:

“The evolution of responsible investing is a natural and expected process that is beneficial both to investors and the industry,” said Roger Beauchemin, President and CEO of Addenda Capital. “Several trends are helping to strengthen practices: investors’ growing appetite for data on environmental, social and governance (ESG) issues, pressure on companies to improve transparency, and industry efforts to define and meet standards in sustainable investing.”

“As the definition of responsible investing matures and the collective knowledge of our industry continues to increase, we are encouraged to see significantly more respondents turning to thematic approaches and to hear that a desire to address key issues like climate change will continue to drive growth over the next few years,” said Karrie Van Belle, Chief Marketing & Innovation Officer, AGF Investments Inc.

“We are incredibly proud of the progress that Canadian investors are making to deliver more transparency, a diversity of responsible investment solutions, and better client outcomes,” said Fate Saghir, SVP, Head of Sustainability, Mackenzie Investments. “This report reinforces Canada’s ambition to lead in the future low-carbon, equitable, and prosperous economy, and we at Mackenzie, are humbled to participate in this journey on behalf of our clients.”

“We are inspired by the level of attention investors are paying to climate factors. What’s more, the relatively low use of impact investing revealed by the report suggests there is untapped opportunity to leverage investment portfolios to reduce global carbon emissions,” said Adelaide Chiu, VP, Head of Responsible Investing & ESG Services. “We look forward to helping Canadians seize the opportunity to make an impact as they pursue their financial goals.”

“RBC Global Asset Management is proud to collaborate with the RIA Canada and support its efforts to build greater awareness of ESG trends and issues facing the investment community,” said Melanie Adams, Vice President and Head, Corporate Governance and Responsible Investment, RBC Global Asset Management. “Primary research, such as the 2022 Canadian Responsible Investment Trends Report, plays an important role in helping educate Canadian investors and advisors about responsible investment trends and sentiment.”

About the Canadian RI Trends Report
The RIA publishes the Canadian Responsible Investment Trends Report to understand and assess the characteristics of responsible investment in Canada. This study was completed by Environics Research on behalf of the RIA. The results are based on input from organizations invited to participate in an online survey between August 2nd and September 29th, 2022 as well as desk research completed by the RIA. All figures are stated in Canadian dollars as at December 31st, 2021. The 2022 report was generously sponsored by Addenda Capital, AGF Management Limited, Mackenzie Investments, NEI investments, and RBC Global Asset Management.

About the Responsible Investment Association (RIA)
The RIA is Canada’s industry association for responsible investment. The RIA’s membership includes asset managers, asset owners, advisors, and service providers who support its mandate of promoting responsible investment in Canada’s retail and institutional markets. RIA institutional members collectively manage more than $42 trillion in assets. Learn more at www.riacanada.ca.

View source version on businesswire.com: https://www.businesswire.com/news/home/20221123005078/en/

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Contacts

Nick Buccheri
Director, Operations
Responsible Investment Association
nick@riacanada.ca
+1(416) 461-6042 x5

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