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// By Sean Peasgood
Technology Trends to Watch in 2022 Gen-Z Disruption, Consumer Data Privacy, ESG and Renewables
Despite tax loss selling, the pandemic, pending Central Bank rate hikes and the end of the world, SNN’s MCRI tech subsector’s 64% return in Q4 2021 outperformed the S&P 500’s 11% appreciation, the NASDAQ Composite’s 8%, and the Russell 2000’s 2%.
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hat accounts for this significant outperformance? The answer comes from how index returns are calculated. The most common indices are price-weighted, market-weighted, and equal-weighted. A price-weighted index (such as the DJIA) sums the share prices of all constituents and assigns each stock a weighting based upon its share price relative to the sum. For example, if your price-weighted index has 2 stocks (one is $1/share and the other is $2/share), the sum of stocks would be $3. The first stock would be weighted 1/3 and the second 2/3, so your index would be (1/3 × $1) + (2/3 × $2) = $1.67. You’d calculate a market-weighted index (like the S&P500, NASDAQ Composite, and Russell 2000) like a price-weighted index but use constituent market capitalizations instead of share prices. An equal-weighted index (SNN MCRI) invests an equal amount of money in each constituent. In the prior 2-stock example, each stock would have a 50% weight, so the index would be ($1 × 50%) + ($2 × 50%) = $1.50.
The day after each quarter end, the MCRI replaces underperformers across 11 sectors with the top 30 or so outperforming microcap stocks in each sector. The idea is to highlight the top performers and let them run for a quarter. So, while the MCRI’s returns are impressive, knowing how they are calculated can
74 MicroCap Review Magazine
help provide context when comparing to your own portfolio’s returns. The table above shows the performance of the 11 sectors tracked by the MCRI. Sophic Capital’s bread and butter is founded in developing capital markets strategies for technology issuers, so naturally we are pleased to see tech place third. We are continually asked what tech trends we are watching and which companies could benefit. For 2022, here are a few of the trends we are watching along with a couple potential beneficiaries:
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