In the world of investing, there’s an increasing desire to diversify exposure within the technology sector beyond the dominant mega-cap stocks. To aid in this endeavor, we conducted an in-depth analysis using Citec AI, which incorporates advanced screening, portfolio optimization, portfolio analysis, and backtesting. Our study focused on the performance of the 320 technology companies within the Russell 3000 index, providing valuable insights for investors seeking opportunities across different company sizes and styles.
Analysis by Company Size:
Our analysis grouped the 320 companies into segments of 100, organized by market capitalization. This segmentation revealed intriguing trends and performance patterns:
- Top 5 Companies
- Performance: These leading firms generated an impressive return of +60% over the past year, contributing to over 95% of the equity value generated in the technology sector.
- Market Cap & Valuation: With an average market cap of $2.1 trillion and a Price/Earnings (P/E) ratio of 36, these companies are now growth behemoths.
- Question: The central question remains whether these top companies can sustain their current growth trajectory.
- Top 100 Companies (Excluding Top 5)
- Performance: This group achieved solid returns of 31.17% with notably lower volatility compared to smaller companies.
- Market Cap: Averaging a market cap of $51.7 billion, these companies present a strong investment case with moderate risk.
- Mid-Sized Companies (103 to 209 by Market Cap)
- Performance: These firms saw a modest return of 9.17%, coupled with relatively high volatility.
- Market Cap: The average market cap here is $3.99 billion, indicating potential for growth albeit with higher risk.
- Smaller Companies (209 to 320 by Market Cap)
- Performance: Unfortunately, this segment performed poorly, with returns of -20.13% and exceptionally high volatility.
- Market Cap: Averaging a market cap of $797 million, these companies pose a high-risk investment opportunity.
- Question: The challenge is identifying pockets of value within these smaller tech companies that still possess substantial growth potential without being overvalued.
Performance by Market Cap
| Group | Avg. Market Cap (Million $) | P/E Ratio | Dividend Yield | 1Y Performance | 1Y Volatility | 1Y Beta |
| Top 5 (Equal Weight) | $2,145,418 | 36.31 | 0.68% | 60.10% | 23.06% | 1.42 |
| Top 103 (Excluding Top 5) | $51,746 | 34.61 | 2.06% | 31.17% | 20.05% | 1.48 |
| 103 to 209 (Equal Weight) | $3,991 | n.a. | 2.82% | 9.17% | 24.69% | 1.73 |
| 209 to 320 (Equal Weight) | $797 | n.a. | 4.95% | -20.13% | 34.07% | 1.98 |
Analysis by Style and Quality Factors
We extended our analysis by screening companies based on style and quality factors to uncover additional trends:
- Growth vs. Value Stocks
- Growth Stocks: These have significantly outperformed value stocks, reflecting the technology sector’s focus on potential growth and disruptive innovation.
- Value Stocks: Traditional valuation methods struggle to capture the dynamic value drivers in tech, resulting in underperformance.
- Quality Stocks
- Performance: Quality stocks have delivered solid performance, aligning closely with the S&P 500 and exhibiting lower volatility.
- Investment Comfort: Lower volatility in quality stocks offers a more comfortable investment landscape.
Performance by Style and Quality
| Group | Avg. Market Cap (Million $) | Dividend Yield | 1Y Performance | 1Y Volatility | 1Y Beta |
| Top 100 Growth Stocks | $131,068 | 2.52% | 16.24% | 22.67% | 1.62 |
| Top 100 Value Stocks | $10,588 | 4.26% | -4.29% | 27.64% | 1.74 |
| Top 100 Quality Stocks | $147,454 | 2.03% | 0.2069 | 18.71% | 1.37 |
Building a Custom ETF with Citec AI:
Currently, no ETF specifically targets Russell 3000 technology quality stocks. However, with Citec AI, investors can construct their own ETF by following these steps:
- Select Universe: Russell 3000
- Filter: Technology companies
- Screen: Top 100 stocks based on quality
- Optimize: Allocate capital with equal weight
Conclusion
Our analysis highlights significant performance differences among technology companies in the Russell 3000 based on size, style, and quality factors. While mega-cap stocks dominate in returns, there are compelling opportunities in mid-sized and smaller companies for those willing to accept higher volatility. Using advanced tools like Citec AI, investors can tailor their portfolios to capture value across the technology sector effectively.