In what represents a familiar refrain to what investors have heard over the past several years, a small number of stocks account for a significant percentage of the S&P 500’s 2024 upside. And owing to YTD weakness in shares of Apple (AAPL) and Tesla (TSLA), the much-ballyhooed “Magnificent Seven” has been pared to the “Fabulous Five.” That means a quintet of stocks account for the bulk of the broader market’s gains this year. That’s to the benefit of ETFs heavily allocated to those five names. Those include the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM).
The Fab Five consists of Amazon.com Inc. (AMZN), Alphabet (GOOG), Meta Platforms Inc. (META), Microsoft (MSFT), and Nvidia (NVDA). The quintet combines for about 30.5% of the QQQ/QQQM rosters. That confirms the ETFs are more than adequately levered to that high-flying group.
QQQ Fab 5 Exposure Matters
The large weights to the Fab Five sported by QQQ and QQQM have helped the ETFs to YTD gains of nearly 11%. And the big Fab Five exposure has offset some weakness the funds endured due to large allocations to Apple and Tesla.
“[Apple … has] been hampered by investor worries about slowing growth and a lack of major artificial intelligence initiatives. The iPhone maker remains in the top five contributors to the market’s returns since stocks bottomed in the fall of 2022, but its impact has faded in recent months,” noted Morningstar’s Sarah Hansen.
Top 5 Contributors All QQQ/QQQM Members
Four of the top five contributors to broader market performance are, in order, Nvidia, Microsoft, Amazon, and Meta. Since the 2022 market bottom, the top five contributors are all QQQ/QQQM members — the aforementioned quartet along with Apple.
Translation: While diversification has its benefits, the Invesco ETFs have outperformed over the past several years. That’s due in large part to significant allocations to the best-performing mega-cap growth stocks. The ETFs have also benefited from what they’re not heavily allocated to.
For example, QQQ and QQQM feature healthcare weights that are barely more than half of what’s found in the S&P 500. That’s been to investors’ benefit because that sector is in the midst of a lengthy stretch of underperformance. Pfizer is just one example of that sector’s recent woes.
“Pfizer PFE stock has fallen almost 30% since the market bottomed in October 2022 and has been responsible for a 0.2-percentage-point, or 0.43%, drag on the market’s 46% return over the period, making it the second-largest detractor from the index after Tesla. Morningstar analysts view the company as undervalued. [That’s] despite the stock’s struggles in the aftermath of declining sales of covid-19-related products,” concluded Hansen.
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