In financial markets, it’s often said that past performance isn’t a guarantee of future returns. That’s one way of warning investors that simply because a security performed well in a particular year, there are no guarantees it will be replicated. However, it’s also frequently said that history doesn’t repeat, but it often rhymes. That adage is applicable when examining the histories of some beloved domestic growth stocks because names such as Apple (NASDAQ: AAPL), Alphabet (NASDAQ: GOOG), and Microsoft (NASDAQ: MSFT), among others, have generated consistent long-term upside.
That’s been to the benefit of investors owning exchange traded funds such as the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM), which have consistently been significantly overweight tech stocks relative to other domestic equity funds. As such, QQQ and QQQM have consistently beaten rival ETFs that track gauges such as the S&P 500 or other basis domestic equity indexes.
Wealth Creators Live in QQQ
Morningstar analyst Amy Arnott recently examined the top 15 wealth-creating stocks of the past decade, a group including Apple, Alphabet, and Microsoft.
“The stocks on my list created an estimated $15.9 trillion in shareholder wealth over the past 10 years. That’s more than 4 times my estimate of about $3.5 trillion for the top 15 funds,” she wrote. “Owning shares in an individual stock is a lot riskier than owning a broadly diversified fund. And the odds of experiencing a loss are much higher.”
The top eight names on the list, including Apple, Microsoft, and Alphabet, are on the QQQ and QQQM rosters. Those eight stocks currently combine for more than 46% of the Invesco ETFs’ rosters. This confirms those funds have been viable alternatives to stock-picking.
Again, history isn’t guaranteed to repeat. However, QQQ and QQQM sport some sector-level advantages that should be acknowledged by long-term investors.
“From a sector perspective, technology-related stocks dominate the list. That shouldn’t come as a surprise. Given that tech stocks have generated excess returns of more than 8 percentage points versus the broader market over the past 10 years,” added Arnott. “Other sectors, including consumer cyclicals, financial services, and healthcare, also show up in the top 15. Notably absent are old-economy sectors, such as utilities, basic materials, industrials, and real estate.”
QQQ and QQQM devote about 62% of their portfolios to tech and consumer discretionary names. The funds allocate just 3% of their weights to the materials, utilities, and real estate sectors.
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