Name: NDX Ecosystem: Capturing Innovation Up and Down the Cap Spectrum
Uploaded: 2026-03-19T18:56:08.758Z
Duration: 30 min 6 s
Description: NDX Ecosystem: Capturing Innovation Up and Down the Cap Spectrum

Transcript for "NDX Ecosystem: Capturing Innovation Up and Down the Cap Spectrum": And welcome to our panel on an NDX ecosystem, capturing innovation up and down the cap spectrum. I'm Salvatore Bruno, head of index insights for The Americas at NASDAQ Global Indexes. The twenty first century has been defined by rapid technological progress and innovation. Over just the past two decades, we've seen the widespread adoption of mobile connectivity, cloud computing, and digital infrastructure that power today's global economy. More recently, advances in artificial intelligence are reshaping how companies operate, invest, and compete. While developments in areas like autonomous systems from vehicles to logistics are changing how people and goods move around the world. For investors, the challenge is simply not simply recognizing these trends, but understanding how to gain exposure to the companies translating innovation into durable business models. Many of these firms share common characteristics, heavy investment in research and development, scalable platforms, and leadership in emerging technologies, and they tend to cluster within innovation focused segments like those represented across the Nasdaq ecosystem. And that's what we will explore today, How innovation is showing up across the market and how investors are approaching these opportunities through equity exposure. Here to discuss this timely topic is Paul Schroeder, QQQ ETF strategist at Invesco. Welcome, Paul. Thanks for having me, Salvatore. Before we jump into discussing innovation up and down the market cap spectrum, I thought it would be helpful to set the stage by discussing what we're seeing in 2026. It's been an eventful start to the year. Prior to the start of the conflict in The Middle East, we've seen a very wide chasm open up between semiconductor and other hardware companies relative to the software sector, with the spread of performance reaching over 30 percentage points at one point. Yet if you look at the performance of the Nasdaq one hundred, it was never down more than 3.3% year to date at any point. Can you talk a little bit about how the Nasdaq one hundred has managed to limit its losses in such a turbulent environment? Yeah, that's a great question, Salvatore, and I'm glad that we're starting here because it's probably the number one question that I've been getting here over the past few months, especially over the past few weeks, right? As volatility has picked up, we saw the VIX spike up to the highest that it's been in some, a few months for some time, it's come down here over the past few trading sessions, but still trading above 20. But we've seen a huge performance differential between QQQ and software specifically, right? A lot of news floating around about how software companies are adapting and changing with the AI revolution, we are in full swinging. And I think there's been a lot of interesting topics and a lot of different things that have been going on. So, I'll share a few thoughts that I have about what's going on in the market and how it relates back to QQQ. So, as you alluded to Salvatore, software has taken it on the chin basically since October. What I always have to remind people though, is that software has been one of the primary performing industries, basically since 2015. Software, I think really was one of the leading areas of tech where they've adapted basically, if you think about, for example, Windows 2008, we were probably sold buying CDs to update our operating system from that to 2008. And you think about now, everyone's paying a subscription, this idea of SaaS, Software as a Service, a way for companies to annuitize the revenue that they were receiving. And that really revolutionized the income statements of a lot of different software companies, let alone the technological advances that they made. It was really set on an extreme upward trajectory during 2020, where everyone had to work remotely, it worsened a lot of different other technologies such as cloud computing and data centers as well, that we've seen perform strongly over the past five years. So, I think in general, have to look at it not just over the last six months, but how that fits into the overall trend we've seen over the past ten years. Obviously, lot of questions have arisen around how software companies are adapting and changing, as AI becomes more integrated into companies businesses. And I still think there are a lot of questions around that, and it might be a little early to making presumptions about how these companies are going to continue to generate revenue going forward. They've shown the ability to adapt and change, which really is the lifeblood of many Nasdaq 100 companies. It's the pedigree that we've seen over the past twenty seven years that QQQ has been trading. So in my mind, it's something that for sure we're seeing a lot of disruption over the short term, but we have to keep in mind how it fits in the overall trend and really what these companies have proven through time. I'm sure we're gonna have winners and losers over the next few years as AI continues to be integrated into these different softwares and how they're used overall, but I think we have to think about it overall. How this all fits back into the NASDAQ 100 and QQQ though, as you alluded to, QQQ had max drawdown year to date of about 3.3%, today it stands being down by about 2% after the last two trading sessions we've seen this week, it's performed very resiliently. And I think what we need to remember is that QQQ isn't just a software fund and more importantly, it isn't just a tech fund that software fits into. Through the years we've seen QQQ since its inception outperform the tech sector, while only having about 50 to 60% in tech on average during that time. So, you have strong exposure within the sector that has performed one of the strongest over the past twenty five years, while only taking, while outperforming it and having half the exposure. So that's another thing that we want to keep in mind is that Nasdaq one hundred and QQQ is comprised of technologically focused companies, forward thinking companies that have been powering the global economy for the twenty first century through the fundamental growth that we've seen. That's a great point. So one of the hallmarks of these companies is the logic investments that they make in research and development, as well as CapEx. We've heard the stories of the hyperscalers and how much they're spending on AI. So, and we know what the companies that invest more in R and D have outsized returns, and they also have these outsized patent portfolios that become important drivers, as you mentioned, of earnings growth and sales growth, and that's ultimately what drives stock prices higher. Can you give us an example, one or two, of of these types of companies and sort of talk through the innovation that you find in QQQ and how this is leading to investment returns? Yeah, I would say that's our long term thesis for QQQ, is that the companies within QQQ and the Nasdaq 100 have shown the ability to innovate through time. And as you just said Salvatore so well, is that innovation the way that we gauge it through a lot of the research that you folks do at Nasdaq is through research and development spending and patent activity. What we see, have seen over the past twelve months is that your average Nasdaq 100 company is spending around 17,000,000,000 on research and development in a given year. If you compare that to your average S and P 500 company, they're spending around 12 to 13,000,000,000. So you see a huge difference in that focus on innovating. I think what's most astounding though Salvatore is that you have about 85 to 86 companies that are in both the S and P 500 and the Nasdaq 100. And if you take those 85 companies out of the S and P 500, that R and D spend drops to under $2,000,000,000 on average. So it really shows you that these companies are the drivers of innovation when you're looking at research and development. Think what we have to keep in mind though, is at the end of the day, research and development is a spend, right? It's an expense that shows up on the income statement, and it's a long term investment into a company's future. So you might not necessarily see R and D show up at the top line or bottom line in the next quarter, two quarters, three quarters out, it's a multi year investment that we've seen. So along the way, what we'd like to see is for a company to monetize that in some way, and that's done through patents. You see strong patent activity through the years in disruptive technologies. If we only take a look at the last twelve months, Salvatore, you see for example, natural language processing, you see QQQ, Nasdaq one hundred companies account for about 42% to 43% of all NLP patents that have been filed globally. So if you think about all the publicly traded companies in the world, this small subset of companies are accounting for such a massive amount of a technology in patent activity, that is a primary driver of the growth within a new industry, which is AI. And that's just one example, you can go down the list of many other different technologies, whether it's cloud computing, and it's not just within tech, it's within clean energy as well, and many others that we list out if we had more time, but these companies are spending the money to develop the patents, which has ultimately led to the strong fundamental growth that we have seen. We see earnings, revenue and dividend growth outpace that of the S and P five hundred and the Russell one thousand growth. These companies really have grown to be the conglomerates of the twenty first century, they're diversified, they've not only become a huge part of the global economy, but you see indexes such as the S and P 500 and the Russell 1,000 growth look more and more like NDX as time has passed. So really the impact that these companies have had through the years, where you're able to gain exposure by placing a trade in one ticker symbol really has been game changing. Yeah, mean, so you really, I mean, that's a great point. You make a very compelling case. So it's really like a flywheel where companies are investing in the R and D and they're generating the patents, which is generating the sales, which is generating the earnings, which is driving performance. So it's a very compelling story. So how are investors using QQQ in their portfolio? Yeah, I mean, QQQ falls within the large cap growth bucket. It obviously skews a little bit larger because it is market cap weighted and you do have names like Nvidia, Apple, Microsoft, some of these larger names that are the biggest companies in the world get larger weights. And we've seen it be the 500 pound gorilla within the large cap growth space between the Qs and KikiQM, which is our other NASDAQ 100 tracking ETF, we account for 27% of all large cap growth ETF AUM in the world. So we are the ones that people are trying to take money from, so to speak, Sal. But with that being said, we've seen more and more investors because as I've alluded to before, S and P five hundred and Russell one thousand growth had been looking more and more like NDX through the years, we've been seeing more and more people use QQQ and QQQM as the core holding of their portfolio. If you're gaining 30% to 40% exposure to the 10 largest names within the S and P five hundred, why wouldn't you buy QQQ instead and bolt on your value exposure, which has traditionally underperformed over the past ten years, we still think it's very important to have that exposure for a well balanced diversified portfolio, but why wouldn't you want more exposure to the companies that have been driving the fundamental growth? As you alluded to fundamentals leads to price performance. But we've been saying to clients as you might wanna consider an equal weight approach to the S and P 500 to both that and pair that with QQQ. So you get a well rounded core exposure with the Qs being the prominent performance driver that we've seen over the past ten to fifteen years. So we've seen a lot of different ways that just touches really on portfolio construction, but QQQ is the second most traded ETF in the world. It has the second most active derivative space in the ETF industry. So we see many investors, many different types of investors use QQQ from buy and hold investors all the way up to sophisticated institutions that are using it along with everything in between. You have market makers that may be using QQQ to hedge NDX futures positions or options positions on the index. You have sophisticated institutions such as pensions and other asset managers that are using QQQ to gain exposure to the space as well. So QQQ is used in a wide variety of places, but I think most applicability, I think investors should be considering using it as a core part of their portfolio going forward. So of course, we cut it at a 100 companies to make the Nasdaq 100, but there are more than 100 great innovative companies in this world. Where else should investors look for the next great company that is investing for that growth we've been talking about, but hasn't quite yet made it into the Nasdaq 100? Yeah, Nasdaq has done a phenomenal job of attracting new technologically focused forward thinking companies. If you think about it, the work that your listing scene does is the lifeblood of QQQ and the rest of our products. If it wasn't for them, the portfolio could look a lot different since that is the primary gauge for the index and for the fund, you need to be Nasdaq listed to be included within the Nasdaq one hundred. I'd like to think that that's almost a gauge that a lot of new companies that do list is that they wanna be part of the Nasdaq one hundred. It's become synonymous with being one of the primary benchmarks within the markets. So, what we see though, is that that doesn't stop at the top 100 companies. And we've launched strategies in conjunction with the help of Nasdaq with the indexes that they provide to move down cap market spectrum, to capture some of those companies that aren't necessarily large enough to be included within the Nasdaq 100. It doesn't stop at large cap growth, it can go down further. So as Sal mentioned, the top 100 companies that are not financials are included within NDX and QQQ. The next 100 companies, so think about company number 101 through 200 are within the NASDAQ Next Gen Index or QQQJ. And that gives you an area of the market, is just below large cap, still skews a little bit larger than let's say like the S and P 600 or S and P 400, excuse me, the mid cap benchmark there. So you get this nice area of mid cap growth, where you get companies that are highly innovative, they are outspending the broad benchmark from an R and D perspective, they have strong patent activity within disruptive technologies and technologies that are adding to the bottom line today. To give you a way to capture that mid cap growth space that has performed extremely well over the past fourteen months. We had over a 20% return within QQJ last year, it was outperforming the Qs actually majority of the year until we hit October. And this year we're seeing strong performance again, from QQJ outperforming large caps pretty well. You do generally tend to get similar exposure, not to the same extent, but tech and consumer discretionary tend to be the largest sector exposures within QQJ, but you also see things like healthcare rise in weight within the portfolio. And I get the question all the time, Sal, where do you see NASDAQ one hundred going or QQQ going in the future and years to come? Well, I think healthcare is going to play a bigger part. We've seen a lot of innovation within the healthcare space. It's not just within your traditional healthcare companies, you get a lot of other exposures. Healthcare has turned into such a massive industry and has been making such huge advancements over the years that it's something that isn't just your traditional defensive sector anymore, you're getting true innovation within the healthcare sector over the past few years and going forward. Moving on, if we expand out, if you're looking for small cap exposure, there's the NASDAQ Fusurgen or QQQS, which is looking and takes the slice out of the pie within the small cap growth space, where it's interesting, we worked with NASDAQ to change the methodology slightly where we're just not taking the next 200 companies, we're actually looking at patent value and how that relates to their overall market cap. So you end up getting a small cap portfolio that is passively managed and gives you a different sort of exposure within that space of highly innovative companies. There you really see that healthcare theme come out even more where you get more biotech and some of these other disruptive healthcare companies that have been making a difference and will be making a difference in the future. The nice thing though, Sal, with all three of these strategies is that they all fall within the same rebalance and reconstitution schedule. So you will never have overlap between the two and we like to make a big deal about it in December, when all three indexes reconstitute on the December, where you do see graduates that move up from QGQS into QGQJ, from QGQJ into the Qs. And we like to make a big deal out of that because it's a way to really highlight the great work that these companies have had, over the previous years, but also really to highlight that it's a way to own innovative companies throughout the cap market spectrum that are making a difference. So a lot has been written and discussed talking about concentration in not just the Qs, but other large cap equity benchmarks. Benchmarks. For investors that really wanna capture the exposure to the companies in QQQ, but maybe are concerned about some of the concentration risk, you recently just launched a new ETF that equal weights those 100 companies. How can that be a great option for investors? Yeah, so we recently launched on March 18, QEW, which is the Invesco QQQ equal weight ETF and it tracks the Nasdaq one hundred equal weight ETF. I think it's a really great option now for investors who are concerned about the concentration that they are seeing within the market. Now, I think having a conversation around where that concentration belongs within your portfolio is extremely important to have. If you're an S and P 500 holder as the core part of your portfolio, having 40% in the top names of that portfolio might be concerning to me, sure, because the S and P 500 is supposed to give you exposure to The US market, people have used that as a gauge for The US market overall. But if you think about the growth engine of your portfolio, where traditionally over the past fifty, sixty decades has been small cap, we've seen a rotation over the past ten to fifteen years to mega cap growth, which has become the growth engine of a portfolio, why wouldn't you want a market cap with there? But we understand there are investors with different time horizons, investors with different risk tolerances and preferences, we wanna be known as the provider of Nasdaq 100 exposure and everywhere in between, whether you slice up Nasdaq 100 through different parts of it, whether you want an equal weighted through QEW, which is at 25 basis points, 10 basis points lower than the competitor. It's something that we want to be really well known for, and we feel, I personally feel it was kind of the last piece of the puzzle we were missing from the innovations we sell, outside of that coverage expands into different slices of the pie, but I'm really happy that we were able to launch QEW here in light of everything that's going on in the market. It just so happens that it lines up timely, but it's a rather fortuitous moment when we did launch it with all the questions around concentration, all the questions around whether Mag-seven, what's going on with Mag-seven right now and valuations, etcetera. Yes, that's a great point in bringing up Mag-seven. So there may be some investors who actually want more concentration, who really wanna go all in on the max seven, or maybe there are some who want less volatility. Maybe there are some who want more income. One of the great things about the Nasdaq 100 is you start with such a strong core base of a 100 very strong companies. It allows you to do product innovation to meet different investor needs in their portfolios. You're exactly right. So, as you know, Sal, but many people might not know, we really expanded out what we call the QGQ innovation suite starting five years ago. So as I alluded to earlier, QGQN tracks the Nasdaq one hundred as well, at a slightly lower expense ratio, really being focused for those long term buy and hold investors. I mentioned QQQJ and QQQS to move down the cap market spectrum, QEW for a different flavor, same 100 innovative companies, but the suite has expanded out to about nine or 10 different tickers where, as you said, we have a way for you to gain exposure to Nasdaq 100 companies with an option focus as well through QQA. We work with our global asset allocation team here at Invesco to provide an option overlay on top of the Nasdaq 100, which targets a 10% dividend yield on top, an annualized dividend yield on top of what the index already has. So, the index is yielding maybe around 0.7, 0.75 right now. And it's been around for almost three years, this summer will be three years. So, it's done a fantastic job of building out assets as well, for someone who might be income focused. You also alluded to someone perhaps who really wants to lean into MAG seven, right? We saw a lot of different ETFs pop up in 2024, beginning in 2025 to give you specific exposure to some of those largest names. Invesco launched Q BIG, QBIG, that gives you exposure to the top 45% of the Nasdaq 100. We all know through the years, those top names can change, the biggest companies within the market in 2020 versus 2010 versus 2000, that leadership changes through time, right? So why not be dynamic with the way that you allocate to that? So we take a slice of the top 45%, which really you see the holdings ranging from about eight to 10 different holdings within that portfolio as well. I alluded to other ways to gain exposure to parts of the Nasdaq 100 outside of the top, the largest companies, we have QQ LV, which gives you exposure to the 25 least volatile companies, which has performed very well this year as well, outperforming the Qs and the S and P 500 with the volatility pickup that we have seen. So, different ways for you to gain exposure to these innovative companies, Invesco wants to be known as the best place to do that. That's great. So, I mean, that's a great discussion of how investors can get exposure to some of most innovative companies in the world across a range of market caps and waiting schemes and volatility profiles. One kind of final question, are there any specific opportunities in this innovation suite that particularly excite you as we move through 2026 and beyond? Yeah, I think I alluded to it earlier, but if I didn't, I think moving down cap market spectrum makes a lot of sense. I'm not necessarily worried about QQQ and QQQM, the Nasdaq 100, right? As I've mentioned before, there's a whole line of empirical evidence that shows that you should hold the queues for a long period of time, it should be one of the core parts of your portfolio. But I think in light of everything that's going on from a geopolitical standpoint, along with everything that's going on with questions around the AI trade, around where future cash flow is coming to fund some of the build out of the AI infrastructure, we've seen people and investors move down the cap market spectrum. So, QQQJ strong performance last year, we've seen that performance move forward to this year where it is outperforming the Nasdaq one hundred, QQQS, I think also makes a lot of sense as we continue to see small cap companies perform very well. Now, at the same time though, we do wanna keep in mind, fundamental growth is the driver of performance, we wanna make sure that fundamentals are matching price, to take a little sidebar real quick, because I have been getting a lot of questions around it, we still have seen strong fundamental growth within the Nasdaq one hundred, Q1 earnings within the Nasdaq one hundred and you have been very strong as well. We've seen over 90% of the index meet or beat earnings expectations so far this year. And there's no doubt in my mind that long term thesis within Nasdaq one hundred companies should continue on, as things continue to evolve in this ongoing and ever changing market. 2026 has been a very exciting start so far that we've seen here through about the March. I hope it doesn't get as exciting as we saw, back at the April 2025 with the tariff tantrums, etcetera. But I think what we're seeing overall in the market, a lot can be explained with where we've been over the past ten years, where we've been over the past three years, And unfortunately investments don't go up in one direction all the time, right? The market is ever changing, it's pricing in what it thinks future cash flow will be, future earnings will be, there's a lot of questions going on right now. And I think taking a breather along the way makes sense, luckily through the great indexes that Nasdaq has and that we've partnered with to provide through our ETFs, investors have a lot of different options to gain exposure to the different areas of the market that are performing well. So for those who want to learn more, where can they get more information about this great suite of ETFs from Invesco? Yeah, the best place to go would be invesco.com, and to learn more specifically about Invesco QQQ, it'd be invesco.com/qqq. Awesome, That's so all the time we have. Thank you, Paul, for your insights. They were terrific. Thanks for the audience, for your attention. Just as a quick reminder, we are running a market madness pool that pits 19 different ETFs against each other in four