The Invesco QQQ ETF is a popular exchange-traded fund (ETF) that tracks the Nasdaq 100 Index. Investing in it has several unique risks and benefits. Because it passively tracks the index, the QQQ stock price fluctuates in lockstep with the technology-heavy Nasdaq 100.
Investors reward with the entire profits of this volatile index if it rises, thanks to passive management. They do, however, absorb the Nasdaq 100's full losses when it falls. We will explain how the QQQ ETF works and discuss the risks and benefits of trading QQQ stock.
What Exactly Is the Invesco QQQ ETF?
- The Invesco QQQ ETF is a widely held exchange-traded fund (ETF) that seeks to replicate the performance of the Nasdaq 100 index.
- The majority of QQQ stockholders are large technology companies such as Apple, Amazon, Google, and Facebook.
- The QQQ ETF provides investors with significant returns during bull markets, the potential for long-term growth, a high level of liquidity, and low expense ratios.
- On the bearish, QQQ often drops more in bear markets, has a high level of sector risk, frequently looks to be expensive, and does not include any small-cap companies.
QQQ is an exchange-traded fund that replicates the Nasdaq 100 Index by holding 100 of the top foreign and local companies listed on the Nasdaq stock exchange. The index does not include financial companies and is calculated based on market capitalization. As a result, the QQQ stock portfolio is highly skewed toward large-cap technology companies.
Previously known as the PowerShares QQQ Trust ETF, the Invesco QQQ ETF was known as the PowerShares QQQ Trust ETF. Additionally, it refers to colloquially as the "triple-Qs" or the "cubes." The QQQ ETF is often seen as a barometer of the technology sector's performance. The Nasdaq 100 Index, upon which the QQQ stock price basis, has a modified capitalization formula.
This improved technique weights the listed goods individually according to their market capitalization. Weighting enables limitations to be placed on the larger companies, limiting their impact and balancing the index among all members. Nasdaq does this by reviewing the index's composition every quarter and adjusting weightings if the distribution criteria aren't satisfied. In contrast to the underlying Nasdaq 100 index, the Invesco QQQ ETF is a marketable asset that trades on an exchange. It enables traders to invest in Nasdaq's top 100 non-financial companies.
Top Holdings of the QQQ ETF
QQQ provides exposure to companies at the cutting edge of disruptive, long-term trends such as Augmented Reality, Cloud Computing, Big Data, Mobile Payments, Streaming Services, and Electric Vehicles. As of Sept. 30, 2020, the top ten equities in the Invesco QQQ ETF accounted for about 56% of total QQQ holdings. They are listed below in the table.
For QQQ investors, Apple is one of the most crucial corporations. In August 2020, it became the first firm in the United States to have a market capitalization of $2 trillion. Apple has mastered the art of luring customers into its ecosystem and keeping them there. To maintain revenue growth, the corporation upsells and releases new versions of existing items.
Additionally, Microsoft, Google, and Amazon all have a healthy cash flow from operations. The majority of these top stock holdings routinely do well on the bottom line, which provides investors with a sense of security. Amazon, on the other hand, invests heavily in growing its companies.
Sectors of the QQQ ETF
The Invesco QQQ ETF invests in a variety of different areas. They include the information technology (IT) and communication services sectors, such as consumer discretionary, healthcare, consumer staples, industrials, and utilities. Quarterly and yearly, the QQQ is rebalanced and regenerated.
Please keep in mind that some firms that people identify with technology are part of other industries. When it first started, Alphabet (Google's parent firm) and Facebook, for example, entered into the communications services market. Amazon is also a component of the consumer discretionary industry.
This industry employs firms that do research, create, and distribute technologically oriented goods and services. It involves developing hardware such as computers and cellphones, such as the components that power them and the software that runs on them. Others in the field specialize in the development of digital enterprise systems for enterprises.
This new sector was established in 2018 and includes the telecommunications, entertainment, and network services businesses. These firms are transforming how we access information, consume entertainment, and communicate with one another.
This sector comprises businesses that provide non-essential items and services that individuals enjoy when they have extra cash. Invesco QQQ invests in some of the sector's most notable and forward-thinking firms across various sectors, including apparel, entertainment, cars, hotels, and restaurants. Additionally, it comprises many of the largest internet retailers.
This sector's businesses supply several critical services and goods that keep the health care industry operating. They are involved in several facets of patient care, including medical equipment, medications, research, and facility development. Everyone needs care at some point in their life — and the firms that comprise Invesco QQQ are committed to advancing the way that care provides.
Consumer staples are necessary, must-have commodities that people utilize daily, such as food, drinks, and home supplies. They are items that are unlikely to be reduced from people's budgets and are in constant demand. Invesco QQQ stocks contain manufacturers of such things and retailers with the size and reach to take the whole industry forward.
Industrials & Utilities
Industrial companies provide end consumers with goods, machinery, services, equipment, and supplies. These businesses devise strategies for effectively supplying and distributing energy, lowering consumer costs via supply chain optimization, and transporting commodities around the nation.
The Benefits and Risks of QQQ
As with other assets, the QQQ ETF has distinct benefits and risks that investors should evaluate before adding it to their portfolios.
During the ten years ending Sept. 30, 2020, the average annual return on QQQ was 20.16%.
- Significant bull market rewards: If you're feeling optimistic right now or looking for a bullish asset allocation, the QQQ ETF is a terrific pick. During bull markets, the QQQ stock price often outperforms the S&P 500, making it an attractive option for sector rotation schemes.
- Long-term development potential: Numerous companies pioneering new technology, such as computers and zero-emission cars, are included in the QQQ stock portfolio. It increases the QQQ ETF's long-term growth potential. Additionally, QQQ is considerably more diversified than anyone technological business, making it safer in the long term than any of them.
- Liquidity: Frequent traders want the ability to purchase and sell fast and at a cheap cost, which the QQQ ETF provides. By 2020, QQQ's assets under management (AUM) will exceed $100 billion, creating a sizable market for traders.
- Low-Cost ratio: As of Sept. 30, 2020, the QQQ ETF has an expense ratio of only 0.2%. The only certain method to boost profits is to reduce the expenditure ratio, yet expenses accumulate over time.
QQQ Stock Frequently Asked Questions
- Significant bear market risk: While QQQ often outperforms the S&P 500 in bull markets, it frequently underperforms in down markets. When the dot-com boom burst, the QQQ stock price fell precipitously.
- Sector risk: The QQQ ETF's high risks and gains stem from the fact that it invests more heavily in volatile technology-related sectors than the S&P 500. Additionally, there is a risk that Nasdaq 100 stocks could someday lose significance, similar to how railroad companies formerly controlled the Dow Jones Transportation Average (DJTA). Investors already discuss "ancient tech" stocks versus the Nasdaq's mostly younger FAANG stocks.
- High valuation levels: Most value investing criteria consider QQQ stock holdings to be overly pricey. As of September 2020, QQQ has a price-to-earnings ratio of 47.48.
- No small-cap stocks: Because the QQQ ETF invests only in Nasdaq's top companies, it's unable to buy small-cap stocks. According to Fama and French studies, small caps outperformed broader companies over the long term. Furthermore, since small companies have more capacity to develop, growth investment favors them.
What Companies Invest in the QQQ ETF?
The QQQ stock portfolio includes 100 of Nasdaq's largest companies, including Apple, Amazon, Google, and Facebook.
Is QQQ a Good Stock to Buy?
Due to its liquidity and broader performance in bull markets, the QQQ ETF is an ideal buy for frequent bullish traders. On the other side, aggressive traders should be mindful that when QQQ falls, it might lose more than the S&P 500. The QQQ ETF provides buy-and-hold investors with minimal fees and long-term profit potential, as well as sufficient diversity to mitigate the risks associated with betting on a single company. On the negative, long-term investors in QQQ face sector risk, potential overvaluation, and a lack of small caps. In general, QQQ may be a solid long-term investment when combined with other assets.
Is QQQ the Best ETF?
The ideal ETF for you determines by your unique investing goals. QQQ is an excellent option for aggressive traders who are bullish about broad technology companies.
The Invesco QQQ ETF fulfills a lot of the boxes that short-term traders seek in an ETF while also offering considerable benefits to long-term investors. The ETF gives investors access to a tech-heavy basket of large-cap, innovative companies in a liquid and cost-effective way. Furthermore, investors' profit from QQQ stock price rises without having to worry about stock selection concerns. For more information about QQQ ETF and trading information, please visit and check out InstaForex.