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Four charts that show the power of investing in innovation

FRANCESCO CICCOLELLA
A data-driven case for how trying times can elevate business innovation
By Invesco
Published Last updated

2020 will certainly be a year of absorbing interest for future historians. On top of all the ink we expect to be spilled on political turmoil , digital transformation, climate change, the pandemic response, and a half-dozen other touchpoints that have defined our annus horribilis, there may be one aspect about the present that we’re failing to see. Namely, that this global moment could prove to be a seedbed for innovation in 2021 and beyond.

The early signs of this silver lining are already evident. Advances in telehealth that might normally have taken years are occurring within the space of months to maintain care in the midst of Covid-19. Telepresence robots like the kind created by Akara Robotics are moving to the forefront of the field. Meanwhile, the Moderna vaccine for the coronavirus was the fastest ever developed. Liquor distilleries have pivoted to create needed sanitizers. 3D printers have been used to craft ventilators. And countless start-ups are sprouting around ideas like using artificial intelligence to model disease spread or to power chatbots that can diagnose symptoms.

A McKinsey study found that roughly three out of four executives agreed that the changes wrought by the coronavirus will actually pose an opportunity for growth, in sectors from retail to pharmaceuticals. Reflecting confidence in how the US economy will harness the creative energy of this moment to effect real change, major tech companies have been seeing striking gains in revenue and stock market performance throughout even the most difficult weeks of the pandemic.

Zooming the lens out further, Invesco QQQ—an exchange-traded fund that gives investors access to top innovators in the Nasdaq-100 index—has continued to consistently climb over the past decade, based on NAV. This ascent shows the resilience and durability of American ingenuity, and it’s a trend that investors are increasingly paying attention to.

There’s historical precedence for this phenomenon: crisis has often begat innovation and life-changing inventions.

The economic historian Alexander Field called the 1930s, a time of terrifying flux that saw both the Great Depression and the lead-up to World War II, the most “technologically progressive decade of the 20th century.” Radar, nylon, and high-speed photography were all invented in that ten-year span, in part as a response to the massive social, economic, and military challenges of the day.

Historical patent activity data also attests to the fact that entrepreneurship and business ingenuity often flourish at times when society is pushed back onto its heels. The Long Depression of the 1870s and 1880s, a time of debt, deflation, and financial panic, coincided as the chart below shows with a rise in patent applications, ultimately yielding hugely consequential new developments in railroads and inventions like the phonograph and machine gun.

 

Similarly, in the 1970s, an oil crisis helped spark a period of stagnation as the weakness of industrial sectors were exposed. Unemployment was high and inflation soared. And yet, as the patent graph below demonstrates, it was also a time of great creative ferment, with many inventions in particular tied to microchips that powered everything from new kitchen appliances to spacecraft.

More ballast for this optimism in the power of innovation to overcome obstacles can be found in how well the biggest and most influential tech companies have weathered the pandemic. Companies like Microsoft, Facebook, Amazon, and Apple have been perfecting programs and devices that aid communication, information-sharing, and business transactions between physically distant parties, from videoconferencing to cloud storage. Thanks to those transformative advances and positioning, large, vital sections of the economy and healthcare sector have been able to continue operating even with thousands of employees quarantined at home.

Their positive performance is also a testament to the market’s faith in the strategic savvy of tech leaders to be able to adapt through challenges.

As the chart below makes clear, three of the top tech companies—all represented in the Invesco QQQ ETF—have grown in valuation throughout the height of the pandemic. This past summer saw reports that Apple had become the first US company to reach a market value of $2 trillion, while Microsoft’s commercial cloud business surpassed $50 billion in revenue.

For a big-picture barometer of why innovation is worth investing in over the long term, look to Invesco’s QQQ. As an ETF focused on fast-growing sectors like technology, healthcare, and communication, QQQ has been ranked #1 (of 327) of the best-performing Lipper large-cap growth funds for the past 15 years, based on total return as of January 31, 2021.

Thanks to its emphasis on companies centered around transformative, era-defining change, the QQQ—which tracks the Nasdaq-100 index—closed with more than $100 billion in assets at the start of May 2020, one of only five ETFs to have assets in excess of that watermark number.

By studying the annual total returns of the Nasdaq-100 index against the S&P 500’s, it’s clear that the Nasdaq’s focus on technology has helped propel it to see gains even through rocky periods like the pandemic. The Nasdaq-100 TR index has maintained cumulative total returns that are roughly 2.5 times that of the S&P 500 TR index.

 

The news headlines these days bring very real fears and uncertainties that can’t be downplayed. But forward thinkers, as they have in the past, are already meeting the moment, leveraging new ideas and advances to solve our way out of the crisis. Amidst the setbacks the world is facing, it’s one sign of hope that investors can hang their hat on.

QQQ Standardized Performance
Past performance is not a guarantee of future results; current performance may be higher or lower than performance quoted. Investment returns and principal value will fluctuate and shares, when redeemed, may be worth more or less than their original cost. See invesco.com to find the most recent month-end performance numbers. Market returns are based on the midpoint of the bid/ask spread at 4 p.m. ET and do not represent the returns an investor would receive if shares were traded at other times. Fund performance reflects fee waivers, absent which performance data quoted would have been lower. Index returns do not represent fund returns. Invesco QQQ’s total expense ratio is 0.20%.

To learn how you can be an agent of innovation and access the companies helping build for the future, explore Invesco QQQ ETF.

This article was produced on behalf of Invesco by Quartz Creative and not by the Quartz editorial staff. Sources are provided for informational and reference purposes only. They are not an endorsement of Invesco or Invesco products.

NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE

Source: Lipper as of Dec. 31, 2020. 1-yr rank 11% (67/653), 5-yr rank 2% (10/558), 10-yr rank 1% (1/439). Rankings exclude sales charges including fee and expenses versus all mutual funds, ETFs and funds of funds in the category tracked by Lipper. Past performance is not a guarantee of future results.

There are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risks similar to those of stocks, including those regarding short selling and margin maintenance requirements. Ordinary brokerage commissions apply. The Fund’s return may not match the return of the Underlying Index. The Fund is subject to certain other risks. Please see the current prospectus for more information regarding the risk associated with an investment in the Fund. Investments focused in a particular sector, such as technology, are subject to greater risk, and are more greatly impacted by market volatility, than more diversified investments.

Shares are not individually redeemable and owners of the Shares may acquire those Shares from the Fund and tender those Shares for redemption to the Fund in Creation Unit aggregations only, typically consisting of 50,000 Shares.

The NASDAQ-100 Index comprises the 100 largest non-financial companies traded on the Nasdaq. An investment cannot be made directly into an index.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.

Invesco is not affiliated with Quartz, Moderna, or Akara Robotics.

As of February 10, 2021, Invesco QQQ had 11.83% exposure to Apple Inc., 9.43% exposure to Microsoft Corp., 8.49% exposure to Amazon.com, Inc., 3.31% exposure to Facebook Inc., and 0.0% exposure to Akara Robotics Inc.

This content should be not be construed as an endorsement for or a recommendation to the Companies discussed herein. The Companies listed herein are not affiliated with Invesco.

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