Powered by ongoing bullishness among growth and momentum equities, the Invesco QQQ Trust (NASDAQ: QQQ) is close to a rare achievement for broad market ETFs: nearly doubling in less than two years.
Since the end of 2018, QQQ returned nearly 91%, leaving S&P 500 index funds and ETFs in its wake. Over the past two years, QQQ is higher by 62.7% compared to 25.8% for the S&P 500, and the Nasdaq-100 ETF shows no signs of relenting.
Momentum and growth stocks led the charge Wednesday. Meanwhile, cyclical stocks, which tend to perform well in times of economic recovery, were mostly lower.
“Last year, when the economy and earnings were booming, the Nasdaq 100 Index put together its best rally in a decade, rising 38%. In 2020, amid a raging recession and plunge in profits, it’s doing a little less well: up 37%,” reports Sarah Ponzcek for Bloomberg.
Investors Are Taking Note
Year-to-date, QQQ has added more than $14 billion in new assets, a total surpassed by just three other ETFs, just of one of which is an equity-based fund. Earlier this year, QQQ joined the exclusive $100 billion in assets under management club, becoming just the fifth ETF to do so.
QQQ allocates a combined 89% of its weight to the technology, communication services, and consumer discretionary sectors. Obviously, what’s inside QQQ goes a long way toward explaining the fund’s returns, but what’s left out of the fund also helps.
For example, QQQ features no exposure to energy, financial services, and real estate stocks – three of this year’s lagging sectors. In other words, QQQ is more a growth fund than a value fund and that’s a benefit with the value factor lagging.
The growth style, though, may be gaining momentum as investors turned to upbeat economic and earnings data, causing many to adopt a more risk-on attitude. Since growth stocks show high multiples, investors may expect that the companies will sustain a high growth rate. In contrast, traders may feel that firms with low multiples would continue to experience tepid growth.
“Megacap tech firms have emerged as unshakable market leaders. Adored for their sturdy balance sheets and business models that not only hold up in a lock-downs but excel, the Nasdaq 100’s performance is making history by the day,” according to Bloomberg.
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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.