On Sunday, the Invesco Nasdaq 100 ETF (QQQ) turned 25 years old. The more than $250 billion ETF is the fifth largest ETF behind three S&P 500 ETFs and one even broader U.S. equity ETF.
Some have thought of QQQ as a technology ETF or a collection of stocks with little in common besides trading on an exchange. Yet, rising 22% on an annualized basis over five years, 18% over 10 years, and 22% over 15 years, for many advisors, the fund has just been a good investment in innovative companies.
In the past decade, QQQ has generated positive returns eight times. The strongest years were 2023 (up 55%), 2020 (up 49%), and 2019 (39%). But in 2022, the fund lost 33% in value. Year to date through March 8, QQQ was up 7.2%. It has gathered $5 billion thus far in 2023 on the heels of $7.3 billion of new money in 2023.
What’s Inside QQQ
QQQ holds shares of the 100 largest companies trading on the Nasdaq. Those include Microsoft (8.6%), Apple (7.4%), Nvidia (6.5%), Amazon.com (5.2%), and Meta Platforms (5.1%). Some consider these all technology stocks. Others rightly point out that the last two are consumer discretionary and communications stocks. However, we can likely all agree that Costco Wholesale (2.5%) and PepsiCo (1.6%) are driven by different factors than Microsoft and Apple.
Using GICS sector allocations, QQQ recently had more than half of its assets in information technology and communications services stocks. However, it also had 19% in consumer discretionary, 7% in healthcare, 5% in industrials, and 4% in consumer staples.
Over the years, investors have sought out alternatives to QQQ. The Invesco NASDAQ 100 ETF (QQQM) launched in October 2020 as a low-cost version of QQQ. QQQM’s 0.15% net expense ratio was less than QQQ’s 0.20%. QQQM’s asset base has climbed to $22 billion.
However, many investors still prefer the original version of the Nasdaq 100 for its strong liquidity. QQQ’s 30-day average trading volume of 43 million shares is much higher than QQQM’s 1.8 million shares. If your time horizon is short, QQQ could be a better choice.
An Equal-Weighted Approach
There’s also a strong fund for those investors who want to own the stocks in the Nasdaq 100 index but are concerned about concentration risk The Direxion NASDAQ-100 Equal Weighted ETF (QQQE) holds Meta Platforms and Nvidia, but at roughly similar stakes as smaller companies. The $1.2 billion fund also has 1%-plus positions in Advanced Micro Devices, Constellation Energy, and Netflix. However, the equally weighted ETF, which launched in 2021, has underperformed QQQ in recent years.
Happy 25th Invesco and Nasdaq. There is much to be proud of and much more to come. We believe as more investors turn to ETFs for diversification purposes, QQQ will be a major beneficiary.
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