San Francisco, California – Investors are eyeing the First Trust Nasdaq-100-Technology Sector Index Fund ETF (QTEC) as they anticipate a potential shift in performance. The ETF, which focuses on a portfolio of technology stocks from the Nasdaq 100 index, has historically underperformed compared to the mega-cap tech stocks. However, with the rise of the artificial intelligence industry, there is growing optimism that QTEC may see a turnaround and outperform the Nasdaq 100 index in the near future.

QTEC’s equal-weight strategy, which involves rebalancing the portfolio four times a year, has been attributed to its underperformance in the past. The fund’s focus on technology stocks excludes non-tech stocks like Costco, Honeywell, and PepsiCo, creating a portfolio that is heavily skewed towards the technology sector. Despite its historical underperformance, the fast-growing nature of the technology industry presents an opportunity for QTEC to shine in the upcoming AI gold rush.

The fund’s equal-weight strategy poses both advantages and challenges. While it may result in more evenly distributed returns if growth is spread across all stocks, it can also lead to underperformance if the growth is limited to a few stocks. This was evidenced in the past decade, where QTEC’s returns fell short of the Nasdaq 100 index as the market-weight strategy of the index proved more beneficial during a period of rapid growth for mega-cap tech stocks.

Looking ahead, investors are hopeful that QTEC’s high exposure to software companies, representing 40.1% of its portfolio, will pay off in the second wave of the AI gold rush. As software companies increasingly integrate artificial intelligence into their applications, growth is expected to be more evenly distributed, benefiting a broader range of companies in the sector. This shift in the industry dynamics could position QTEC to potentially outperform the Nasdaq 100 index in the future.