As has been widely noted, technology is expected to rank as one of this year’s worst-performing sectors. That’s a foreign concept for many investors who grew accustomed to the sector leading the way during the prior growth equity-fueled bull market.
With tech ranking as the largest sector in a variety of broad market indexes, it’s a pivotal driver of outcomes for scores of exchange traded funds, such as the Invesco QQQ Trust (QQQ )+ and the Invesco NASDAQ 100 ETF (QQQM ).
Both ETFs track the tech-heavy Nasdaq 100 Index (NDX), which is unsurprisingly faltering in 2022 as rising interest rates sap growth stocks within and outside of the technology sector. However, some market observers believe that some of the foundational stocks in QQQ and QQQM could be in store for better performances in 2022.
“Technology is an area that is infamously ripe for disruptors, but some companies have been able to carve out pockets of stability,” wrote Morningstar analyst Margaret Giles. “Companies in the technology sector are engaged in the design, development, and support of computer operating systems and applications. This sector also includes companies that make computer equipment, data storage products, networking products, semiconductors, and components.”
Morningstar recently published its best-of list for 2023, highlighting stocks from the GICS sectors that could be standouts next year. Within tech, several QQQ and QQQM components make appearances on the list, including Microsoft (NASDAQ:MSFT), Cisco Systems (NASDAQ:CSCO), and Texas Instruments (NASDAQ:TXN), among others.
Perhaps adding to the allure of QQQ and QQQM as 2023 rebound candidates is the point that many of the ETFs’ tech constituents are quality companies with wide moat advantages.
“Many of the companies that made our list are software application developers that keep their position by providing services with high switching costs. Customers find it difficult to stop using their services because it’s hard to do, expensive, or risky to make the switch,” added Giles.
Within the communication services space, which is the second-largest sector weight in the Nasdaq 100, Morningstar is constructive on media giant Comcast (NASDAQ:CMCSA) among the stocks residing in QQQ and QQQM.
Other QQQ and QQQM member firms that make the Morningstar best-of list for 2023 include biotech giant Gilead Sciences (NASDAQ:GILD) and Starbucks (NASDAQ:SBUX). The consumer discretionary and healthcare sectors combine for over 21% of the Invesco ETFs’ weights.
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