The Innovation Spillover: Capturing Tech Beyond U.S. Megacaps

In recent years, getting tech exposure was easy. You bought an index fund, whether a mutual fund or an ETF, and let the biggest names carry the portfolio. Now, those names make up such a significant share of large-cap indices that advisors are getting nervous. Indeed, many are looking elsewhere for the next stretch of compounding growth typically associated with the tech sector.While the megacap technology companies command media attention, a dynamic tier of midcap innovators is aggressively scaling revenue, expanding cloud integration, and driving enterprise software adoption. Their organic growth often runs higher than the giants’, and fewer institutions are crowding into them. For portfolios that want a pure operating momentum, that makes them a strong fit.Key Takeaways: Advisors are using midcap innovators like the Invesco Nasdaq Next Gen 100 ETF (QQQJ) to capture organic growth without megacap concentration risk. International tech ecosystems — anchored by chipmakers in Taiwan, South Korea, and the Netherlands — provide vital diversification via the Invesco Nasdaq International Innovators 100 ETF (QQI). Equal-weighting structures like the Invesco S&P 500 Equal Weight ETF (RSP) break the market-cap feedback loop, preventing a handful of dominant stocks from dictating portfolio performance. For allocators looking for systematic access to this segment without having to stock-pick individual names, products like the Invesco Nasdaq Next Gen 100 ETF (QQQJ B) offer a targeted solution. Considered one of the most established members of Invesco’s QQQ Innovation Suite due to its launch date in October of 2020, QQQJ functions as a highly liquid, midcap supporting fund that captures the “next 100” companies on the Nasdaq. The fund has amassed roughly $1.17 billion in AUM and has an expense ratio of 0.15%. It’s top three holdings are Natera Inc., eBay Inc., and Revolution Medicines.Geographic Diversification in TechFor years, “tech investing” and “U.S. megacaps” meant the same thing, but this notion no longer holds. The chips that power AI are largely fabricated in Taiwan and South Korea, and the machines that make those chips come from the Netherlands. An investor who holds only domestic tech is missing a large share of the companies building the technology everyone else uses. A portfolio of the same few domestic names moves together, while international innovators operate under different economic cycles, policies, and competitive pressures. Adding international megacaps can broaden both opportunity and diversification. A solution that targets this gap is the Invesco Nasdaq International Innovators 100 ETF (QQI), which tracks the Nasdaq International Innovators 100 Index and gives exposure to non-U.S. large- and midcap innovative companies across developed and emerging markets. QQI, which Invesco launched on September 23 as part of its QQQ Innovation Suite expansion, has an expense ratio of 0.29% and $3.9 million in AUM. It uses a rules-based methodology to select 100 stocks from the broader Nasdaq Global Ex US Large Mid Cap Index. Taiwan Semiconductor Manufacturing Co., Ltd., ASML Holding NV, and SK hynix Inc. make up QQI’s top three holdings. The index’s rules choose companies using an “Innovator” score. From there, the selected stocks are ranked on the strength of their associated companies’ research and development investments, revenue growth, and profit margins.Resetting Concentration RiskMarket-cap-weighted indices have a built-in oddity: The more a stock rises, the more of it the index holds. Investors in a traditional S&P 500 fund end up buying more of whatever has already run up, so a handful of megacap names can come to dominate the portfolio. When those numbers stumble, the whole portfolio feels it. Equal weighting breaks that feedback loop. Instead of letting price momentum set each company’s influence, every component gets the same slice. The index is periodically rebalanced back to even. The Invesco S&P 500 Equal Weight ETF (RSP B+) is a natural foundational core holding for this approach, because it holds the same companies as the S&P 500, while at the same time spreading the weight evenly. RSP’s top three holdings are Moderna, Inc., PTC Inc., and Accenture Plc Class A. For more news, information, and analysis, visit the Innovative ETFs Content Hub. Invesco Distributors, Inc. is an independent company unaffiliated with VettaFi LLC (“VettaFi”). These articles do not form any kind of legal partnership, agency affiliation, or similar relationship between VettaFi and Invesco Distributors, Inc., nor is such a relationship created or implied by the articles herein. VettaFi LLC is the author and owner of these articles. Invesco Distributors, Inc. does not provide legal or tax advice. This information is provided for general educational purposes only and is not to be considered legal or tax advice. Investors should consult with their legal or tax advisors for personalized assistance, including information regarding any specific state law requirements.