For Long-Term Investors, a QQQ-to-QQQM Switch May Make Sense

The Invesco QQQ Trust (QQQ) isn’t just one of the largest exchange traded funds. QQQ, which tracks the Nasdaq-100 Index (NDX), has long been the gold standard for accessing NDX’s lengthy out-performance of traditional benchmarks like the S&P 500 and the Russell 1000.

QQQ is large, liquid, and provides ample exposure to venerable growth companies, such as Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), and Amazon (NASDAQ: AMZN), among others. It’s also reasonably priced with an annual fee of 0.20%, or just $20 per $10,000 invested.

However, cost-conscious investors may want to consider the Invesco NASDAQ 100 ETF (QQQM). A simple way of looking at QQQM, which debuted last year, is that it’s the less expensive version of QQQ. QQQM charges 0.15% per year, or $15 on a $10,000 stake.

Five basis points doesn’t sound like much, but over time, with the benefits of compounding, that savings will prove considerable, indicating QQQM is an ideal avenue for long-term buy-and-hold investors to access the Nasdaq-100 Index. Those cost efficiencies are already resonating with investors. QQQM doesn’t celebrate its first birthday day until Oct. 13, but it already has $1.52 billion in assets under management, easily making it one of the biggest success stories among the 2020 crop of rookie ETFs.

While QQQM’s assets under management tally has risen more than four-fold since inception, its average daily volume more than doubled, confirming that while its liquidity may never match that of its stablemate QQQ, QQQM’s liquidity is sturdy and investors won’t be pinched with costs on that end.

As Invesco research points out, although QQQM isn’t as heavily traded as QQQ, there are still savings in the first year – two basis points – by switching to the former from the latter. Then, in year two, the full effects of the five basis points gap kick in in favor of the investor.

Like QQQ, QQQM tracks NDX and its rapid growth underpins an options market in the ETF.

For buy-and-hold investors that need a little more convincing, the Nasdaq-100 Index has easily topped the S&P 500 and the S&P 500 Growth Index over the past three years. While past performance isn’t guaranteed to repeat, growth stocks could soon be back in style as the economic cycle evolves.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.