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Small-cap info technology (NASDAQ:PSCT) is now worth looking at, with several opportunities, according to a DataTrek Morning Briefing.
The S&P SmallCap Information Technology ETF (PSCT) is up 8.5% since last Tuesday, compared to the Nasdaq 100 (QQQM), which is down 0.3%.
When looking at the one-year trailing relative returns between small-cap info tech (PSCT) and the Nasdaq 100 (QQQM), small-cap tech has lagged the Nasdaq 100 by 4.3 percentage points over any given one-year period since 2014, with a standard deviation of 16.2 points.
In addition, small-cap tech’s (PSCT) rolling annual return has recently lagged the Nasdaq 100 (QQQM) by 38.8 percentage points, which is over 2 standard deviations below the long-run mean.
“The only other time small cap tech (PSCT) underperformed by this much was during the back half of 2020, as U.S. equities rebounded from the short, pandemic-driven bear market earlier that year,” wrote Jessica Rabe, co-founder of DataTrek. “That rally was, of course, led by large cap tech stocks (XLK) rather than their small cap counterparts.”
And although small-cap tech (PSCT) has had a rally over the last week, it still underperformed the Nasdaq 100 (QQQM) by 26.7 points year-to-date. That’s over 1 standard deviation, “and therefore still in unusual territory.”
From 2014 through 2019 — a market period with more “normal” conditions — small-cap tech (PSCT) underperformed the Nasdaq 100 (QQQM) by 1.5 percentage points over any given rolling 1-year period, with a standard deviation of 10.8 points, making the 1, 2, and 3 standard deviation downside levels -12.3, -23.0, and -33.8 points, the report said.
Small-cap tech’s (PSCT) recent annual underperformance relative to the Nasdaq 100 (QQQM) was 3 standard deviation move, and it never underperformed the Nasdaq by 3 sigmas prior to 2020.
After 2019, small-cap tech (PSCT) went to underperform the Nasdaq 100 (QQQM) by another 3.7 points over the following year, with a win rate of 37%, and when it underperformed by 2 standard deviations, it outperformed by 0.9 points with a win rate of 68%.
“The post-2020 history says in order for small cap tech (PSCT) to outperform on a relative basis, either there needs to be a speculative tech bubble, or ‘Big Tech’ needs to fall out of favor,” Rabe said.
This sector likely has the momentum to outperform in the near-term, she concluded. There are opportunities that are “more industrial and in niche markets.”
Here are the sector’s top five holdings:
- Fabrinet (FN)
- SPS Commerce Inc. (SPSC)
- Marathon Digital Holdings Inc. (MARA)
- Insight Enterprises Inc. (NSIT)
- Badger Meter Inc. (BMI)
More on Invesco Exchange-Traded Fund Trust II – Invesco S&P SmallCap Information Technology ETF:
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