Is Invesco’s QQQ the Best ETF?

QQQ ETF Review

Full review of the QQQ ETF, which features the Top 100 stocks on the NASDAQ by market cap. The popularity of the QQQ continues to grow not only due to their tech exposure, but also due to its high-trading volume that generally serves as a market indicator. The ETF is managed by Invesco and has an expense ratio of 0.20%.

The Invesco QQQ ETF is always in the discussion for the best ETF's for long term and beginning investors. I am a huge fan of the QQQ because it aligns with my bullish sentiment on technology, while also providing some sector diversity and international exposure.

This post originally appeared as a video on the 40 Finance YouTube Channel

Unedited Caption Excerpts:
All right. So for investors like me, the big selling point for QQQ is a, represents a basket of the top 100 stocks on the NASDAQ stock exchange. Now, some people make the mistake of thinking that the NASDAQ stock exchange has only tech stocks. So the top 100 of the NASDAQ would just be the top 100 tech stocks in the world. Now, while the NASDAQ is very tech heavy, it's not exclusive to technology stocks. And we'll see in a little bit that there's plenty of other food and beverage healthcare, stuff like that. On the flip side of the QQQ, you have a lot of investors and analysts who would recommend either a total stock market index fund as a great strategy for stock market investing, or they would say just invest in the S and P 500 as a sure. And safe bet for long-term wins.

But as I'll show you in a minute, there are some advantages to just focusing on the top 100 performers, as opposed to spreading out your bets against hundreds and hundreds, or even thousands of stocks that are being traded. Okay. So this is a chart pitting QQQ against the V O O, which is the Vanguard's S and P 500 and the VTI, which has Vanguard total stock market index. These three ETFs probably represent, you know, the most popular names, sit Joe here across ETF investing. And if you look off to the far right, just to skip to the end for a second, this chart spans from August 2nd, 2008 to October 2nd, 2020. And if you look off to the far, right, you can see that the QQQ, which is the blue line has returned over 500% VOO coming in over 200% and VTI, which is the total stock market index is up over a hundred percent.

So all these funds have performed very well, but the QQQ has been significantly better. And that factory mains, even if you want to kind of nitpick. So I wanted to sort of take a contrary and look at it. So I highlighted this blue box down here. This is coming out of, you know, the, the real estate crash in the market crash of Oh eight Oh nine. And I sort of waited for things to get back on track there. But if you just look for the blue line and compare it to, let's just say the orange line, which is S and P 500, you can see that even prior to this sort of technological revolution that we've had over the past three years, that the QQQ had already started pulling away from the VOO. And obviously the VTI is never really in the race here. I personally just think that there's too many stocks in there to even bother if you're not interested in the QQQ that I would recommend the VOO, which at least breaks it down to S and P 500 and a base is your investments, you know, essentially in America, which has outperformed the world markets significantly.

All right. So the most important question with QQQ or any other ETF is what are the holdings? What does this fund comprise of? And can I get behind those names? Can I feel good about investing in these names? So let's jump into the QQQ and see exactly what is in there. Okay. So don't worry. We are not going to go through all these names, but I just wanted to put this up. So you could eyeball it yourself. You'll notice that it is a market cap, weighted ETF, meaning the bigger stocks hold a bigger percentage of the portfolio. As you know, right now, Fang stocks in particular are very top heavy on the market. And you can see with QQQ Apple, Microsoft, Amazon comes in at about 33% of its current holdings. That's key, right? Because some people will view that as a negative. They will say that the market's too top heavy.

What if all three of these stocks crash at the same time, then the whole thing's wiped out? I guess I would answer that by saying the likelihood that all three of these companies go down at the same time for a legitimate reason. I'm not talking about a market crash or a market correction that would essentially wipe out, you know, all the stocks in the stock market, but let's just say Apple has a horrible year and their stock goes down 50%. Well then on the QQQ side, that's only 13% of your total investment. And the fact of the matter is it's very unlikely that Apple is going to go down to zero, right? They might lose 20% or 25% on some just horrible news. But that's not going to drop this thing down to zero. Same goes to Microsoft and Amazon, each one of these companies could have a bad year or a bad press release or some sort of scandal, and they could conceivably dip.

But I think that if you follow the stock market at all and just understand technology in general, then you know that it is very unlikely for these companies to have significant damage to their stock price certainly over the next three years at the bare minimum and many would argue, you know, next 10 to 20 years. So those are the core holdings of the QQQ. Now I've gone through, and I've highlighted a few names to give you some different angles that the QQQ allows you to play so that you get a feel for just how broad this investment is. Okay. So I labeled this slide diversity and by diversity, I mean the different sectors and categories that you actually play in, you see, you have Nvidia on the chip side, Comcast PepsiCo, Costco, Starbucks, ADP CA sex. If you're not familiar is a railroad for crying out loud, a Regeneron, which is pharmaceuticals.

Then you go down to the bottom, you've got monster beverage, Lulu lemon, bottom line here. This is not just tech stocks folks. These are probably companies that are on the edge of technology using it to push their business forward. But we're not just talking about tech stocks here. Alright. On this one, I highlighted some international names, PepsiCo Starbucks, again, Mondelez international,, booking holdings, Mercado Libra. Those are just the names that are in the top 50 that stood out to me as international companies. But if you think about it, if you can go back to some of the more popular names like Invidia, Netflix, AMD, heck Microsoft, Apple. Those are all companies that make a decent chunk of money in international waters. Alright. And one more, these are what I would call the next gen winners, if you will, these are kind of like the Ark invest names that you see that could stand out for the, for the long future Tesla, obviously Nvidia AMD Illumina.

There's just so many different names in here that if you ever woke up and let's just say Microsoft wasn't relevant anymore. That's not going to hurt you, right? Because these guys are going to slowly be creeping up the ladder. If they continue with the pace that they're on. Take Tesla. For example, on the left hand side, I would say that I'm closer to a Tesla bear than a Tesla bull. Now I'm smart enough to recognize the success they have, and it's impossible to argue against their stock performance, but I typically wouldn't buy Tesla as a standalone stock, but QQQ between them a couple of different retirement accounts. QQQ is probably 50% of my retirement savings. And I'm glad I have exposure to Tesla at 4% in the QQQ because it gives me that opportunity for the long-term, if Tesla continues to run. Alright, so hopefully those slides gave you an idea of just how like diverse and broad reaching the QQQ is if you're ever talking with your friends or family gathering and you talk to Q a you'll often hear older folks, if you will say, well, that's just tech stocks and that bubble is gonna burst.

But now, you know, after going through that list that it's not just tech stocks and there's a lot more to it. And in fact, if we woke up tomorrow and Pepsi and Lulu lemon, suddenly we're in every single house under the sun, their market cap would go up. And there's no reason those that they cannot be the one, two positions on the QQ queue, but it's based on performance. So they'd have to get there first. All right. So I'm trying to be cognizant here that I'm talking a lot of good news about the QQQ. So I do want to bring up what the perceived negatives are. So I'm going to share with you a clip from the morning star QQQ review, just so you understand both sides of the coin. All right. I'll label this, my contrarian view. So this is important if you're not sure you have to be comfortable in the stuff you invest in, you have to have conviction.

So here's the other side of things, despite its low fee and Sterling, recent performance, Invesco QQQ sector, concentration, and single exchange focus limit its appeal. It earns a Morningstar analyst rating of neutral. I'm going to skip down to the third paragraph. Narrowly focusing on the NASDAQ exchange does not make sense. It prevents the fund from owning high quality us firms listed elsewhere, which hurts diversification. For example, the fund missed out on Eli Lilly and Bristol Meyers, which delivered excellent returns over the trailing year through April, 2020, because they trade on the New York stock exchange. Fourth paragraph, this fund single exchange focus also precipitate steep sector concentrations, particularly in technology it's allocation, new tech stocks, 47% communication services. 20% is consistently larger than that, of the Russell 1000 growth index as a result, this strategy's performance hinges on the fate of technology. All right, so let's be clear.

You know, Morningstar has been in the business for a long time and not everybody's calling me asking for stock advice, right? So if you take their angle, it's too heavy in tech. It's not diversified enough because it only follows one stock exchange and those things could cost you in the long run. They also claim that the Russell 1000 growth index is not balanced the same way as QQQ. So they're saying the growth coming in from small caps right now is not just 50% technology and 20% communication sector. It's filled with a bunch of other things. All right, well, bottom line for me, if I only had to own one stock, it would be the QQQ. It's about 50% of my retirement portfolio spread out of a couple different accounts. And I couldn't be more bullish on where the CTF will land over the next 10 to 20 years. Do you keep in mind tech heavy? And it also is, it's a high volume trading ETF. So this is actually good news. No, because what you see is the QQQ can overreact and small percentages to new stories, right? So let's just say there's a fire at the Apple factory. If Apple stock dipped a lot, then the QQQ would typically overreact to that, which is great for a lot of investors. Cause we can get in at a bigger discount for our dollar cost averaging and another.