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A Concern for Tech ETFs Despite ‘QQQ’ Up 18% YTD?

This article was originally published on ETFTrends.com.

The PowerShares QQQ (QQQ) , which tracks the tech-heavy Nasdaq-100 Index, is up more than 18% year-to-date. However, some market observers are concerned about the small number of stocks driving the technology sector's 2018 upside.

Stocks such as Apple (AAPL), Google parent Alphabet Inc. (GOOG), Facebook Inc. (FB) and Microsoft Corp. (MSFT) are pivotal to QQQ’s performance. Conversely, small-cap tech stocks are actually lagging broader benchmarks such as the Russell 2000 Index and the S&P SmallCap 600 Index.

Additionally, some analysts opine that the benchmark’s significant technology overweight leaves it vulnerable should tech stocks fall out of favor. Due to tech’s ascent this year, QQQ’s exposure to the sector has increased while its consumer discretionary weight has been mostly steady.

“The Nasdaq is now up almost 25 percent over the past 52-weeks, while the broader S&P 500 is up 16 percent in that same period. Yet Colas noted that only a handful of super-sized tech companies — such as Amazon and Apple — have been instrumental in pushing the group higher,” reports CNBC.

Tech Still A Favorite

After ranking as 2017's best-performing sector, technology is in the same spot this year, prompting scores of money managers to overweight large-cap tech. Additionally, there is some concern about the lack of contribution to tech's 2018 rally from Chinese tech and Internet companies. That group has been sagging along with the broader emerging markets complex.

The Invesco China Technology ETF (CQQQ) is down 22.35% year-to-date.

“China has almost as vibrant a market for internet and tech as we do, names there are down an average of 23 percent year-to-date,” said DataTrek Research co-founder Nicholas Colas in an interview with CNBC.

Still, there are reasons to remain favorable on domestic large-cap tech stocks.

“Even though Colas detects pockets of pain in tech, he predicts momentum will continue to drive large U.S. cap tech names higher this year. He's not worried about valuations due to the bullishness of the economic cycle,” according to CNBC.

For more news and strategy on the Technology market, visit our Technology category.

Tom Lydon’s clients own shares of QQQ, Apple, Facebook and Microsoft.