Invesco QQQ monthly review

Overview

• For the month of April, QQQ’s NAV returned -4.45% underperforming the S&P 500® Index which returned -4.08%. The Russell 1000 Growth Index outperformed QQQ which returned -4.24% along with Russell 1000 Value Index which returned -4.27%.
• QQQ’s underperformance vs. the S&P 500 was driven by its overweight exposure and differentiated holdings in the Technology sector. The ETF’s differentiated holdings in the Industrials sector also detracted from relative performance.
• QQQ saw inflow of $377.48 million.
• QQQ ended the month with $248.74 billion in assets under management (AUM) and remained the 5th largest ETF in the US (based on AUM).
• For the month of April, shares traded of QQQ rose by 7.14% month-over-month along with notional value traded rising by 4.92% month-over-month.¹

Market Recap

The equity indices’ all-time highs set in March proved to be the most recent top, as stocks sold off in April. The S&P 500 fell as much as 5.5%, QQQ’s NAV down as much as 6.6%, before paring some of the losses during the last week of the month. Volatility increased to its highest level so far this year as the VIX Index hit 21.4 at one point.² Contributors to the pullback were concerns of sticky inflation, rising interest rates, geopolitical unrest and corporate earnings.

April’s selloff gained steam on the 4^th as several Federal Reserve (Fed) officials provided comments on the current state of inflation and monetary policy. Richmond Fed President Tom Barkin stated that it would be smart for the Federal Open Market Committee (FOMC) to take their time as no one wants inflation to reemerge.³ Minneapolis Fed President Neel Kashkari added to the hawkishness stating that if inflation continued to move sideways, he would question whether they need to cut rates at all.

The Consumer Price Index (CPI) monthly reading was released on the 10^th and showed year-over-year inflation higher than analysts’ expectations.⁴ Inflation came in at 3.5%, higher than the 3.4% estimate and 3.2% reading of the previous month. Three out of four CPI readings this year have been 3% or higher, well above the FOMC 2% target. A rise in the cost of Core Services was the largest contributor to the year-over-year numbers with the rise in the cost of Energy and the cost of Food also contributing. The cost of core good fell and was the third month in a row of year-over-year declines.

Month-over-month CPI number was announced above the street’s expectation of 0.3% and was at the same elevated level as the previous reading, 0.4%. The cost of Core Services was the largest contributor to the month-over-month increase followed by increases in the cost of Energy and the cost of Food. The cost of core Goods fell for the month of March. Many investors reacted negatively on the day of the release as the S&P 500 traded down 1.20% with QQQ posting -1.65%.

The FOMC’s preferred measure of inflation, Personal Consumption Expenditures (PCE), was released on Friday the 26^th.⁵ Year-over-year PCE was announced at 2.7%, above the 2.6% expectation and higher than the previous reading of 2.5%. A rise in the cost of services continued to be the majority of the increase followed by the cost of Nondurable Goods. The cost to Nonprofits contributed as well. The cost of Durable Goods fell for the month.

Month-over-month PCE was in line with expectations and the previous month’s reading at 0.3%. The cost of Services contributed the most, followed by Nondurable Goods and Durable Goods. Costs incurred by Nonprofits declined slightly. However, the rise in month-over-month Core Services outpaced that of the increase to Services, raising some concern. Overall, the market rose off of the reading as the S&P 500 trading up 1.02% on the day.

The previously mentioned comments from Fed Officials, combined with the stickier inflation readings, caused many investors to push out their expectations of when the FOMC will start rate cuts. Expectations started to shift after the previous FOMC meeting and continued through the month of April. Fed Futures on Bloomberg showed that the first rate cut was anticipated to arrive in December, a significant shift back from the expectation of July, which was in place at the end of March.⁶

Increased tensions in the Middle East contributed to the rise in volatility during April. During the evening of April 1^st, it was reported that Israel launched an attack against the Iranian embassy located in Syria which left several dead. The Syrian government was quick to condemn the bombing and called it an “atrocious terrorist attack.” The news of the attack contributed to the S&P 500 trading below 5200 the next day. Approximately two weeks later, it was reported that Iran launched an attack against Israel comprised of hundreds of drones and missiles. Israeli military stated that many of the projectiles were intercepted before hitting targets and that “minor damaged occurred to the infrastructure.” This attack occurred over a weekend, but markets responded the following Monday with the S&P 500 trading down 1.20% while QQQ traded down 1.65%. Another attack occurred on April 19^th, taking place in the Iranian city of Isfahan, with Israel not claiming responsibility. This attack was reported to be of much smaller scale and caused limited damage. The increased tensions caused U.S. government officials, along with other countries, to urge the parties involved to work towards de-escalation.

QQQ Performance

From a sector perspective, Consumer Staples, Utilities and Energy were the best performing sectors in QQQ and returned 0.30%, 0.18% and -0.51%, respectively. During the month, these three sectors had average weights of 3.86%, 1.26% and 0.52%, respectively. The bottom performing sectors in QQQ were Industrials, Basic Materials and Health Care with average weights of 4.58%, 1.91% and 6.15%, respectively. Industrials returned -6.60%, Basic Materials returned -6.08% while Health Care returned -5.87%.

Standardized performance - Performance quoted is past performance and cannot guarantee of comparable future results; current performance may be higher or lower. Visit invesco.com/performance for the most recent month-end performance. Investment returns and principal value will vary; you may have a gain or loss when you sell shares. Fund performance reflects fee waivers, absent which, performance data quoted would have been lower. Invesco QQQ’s total expense ratio is 0.20%. Index performance does not represent fund performance. Please keep in mind that high, double-digit and/or triple-digit returns are highly unusual and cannot be sustained.

QQQ’s underperformance vs. the S&P 500 was driven by its overweight exposure and differentiated holdings in the Technology sector. The ETF’s differentiated holdings in the Industrials sector also detracted from relative performance. Underweight exposure in the Energy sector was the third detractor to relative performance vs. the S&P 500. The Consumer Discretionary sector contributed the most to relative performance and was driven by its differentiated holdings. Underweight exposure and differentiated holdings in the Real Estate sector, along with its lack of exposure to the Financials sector, also contributed to relative performance to the S&P 500.

QQQ’s overweight exposure to Intel, Meta Platforms and Advanced Micro Devices were the largest detractors from relative performance vs. the S&P 500. Intel, Meta Platforms and Advanced Micro Devices had average weights during the month of 1.16%, 4.96% and 1.96%, and returned -31.02%, -11.41% and -12.25%, respectively. Overweight exposure to Tesla, Alphabet and PDD Holdings contributed the most to relative performance vs. the S&P 500 for the month and had average weights of 4.26%, 5.22% (combined weight of Class A and Class C shares) and 0.59% respectively. Tesla, Alphabet and Broadcom returned 4.26%, 8.13% and 7.68%, respectively.

Shares of chipmaker Intel weighed heavily on QQQ as guidance issued for the upcoming quarter was met with disappointment. Revenue and earnings-per-share were favorable for Q1 as the company beat analysts’ expectations on both the top and bottom lines. Revenue was reported at $12.72 billion vs. the estimate of $12.71 billion while adjusted earnings-per-share came in at $0.18 vs. the estimate of $0.13. Intel saw year-over-year growth of revenue and earnings-per-share of 8.61% and 550%, respectively.⁷ Guidance issued for next quarter had revenue between $12.5 billion - $13.5 billion. The flat revenue guidance represented no boost from the recently launch artificial intelligence focused GPU, Guadi 3, something that analysts were looking to for an acceleration of growth. Intel also issued Q2 earnings-per-share guidance at $0.10, lower than the consensus of $0.24.

Netflix announced earnings on the 18^th, and it was received with negative price action as the company’s stock fell over 9% the following trading session. Although both revenue and earnings were impressive, beating analysts’ expectations, the streaming service company announced that will no longer be reporting net subscriber growth, a key metric that many investors use to gauge growth. Less transparency in the future was the primary catalyst for the move down in the company’s shares. Revenue was announced at $9.37 billion, higher than the $9.27 billion estimate, while adjusted earnings-per-share was reported at $5.28, much higher than the $4.52 billion expectation. Net subscriber growth was over 9.32 million, nearly double the 4.84 million that the street was expecting.

Despite missing on both the top and bottom lines, Tesla shares surge over 12% post-earnings announcement. The $21.3 billion in revenue missed analysts’ expectations of $22.25 billion while adjusted earnings-per-share was reported at $0.45, over 13% lower than the $0.52 expectation. Tesla has implemented several price cuts over the year, which many investors were hoping would increase sales. Unfortunately for the electric vehicle (EV) maker, this has not occurred as total vehicles sold has fallen 8.5% year-over-year. Driving the boost up of Tesla’s stock was CEO Elon Musk stating that production on new models could arrive early 2025, if not later this year. It was previously announced production would start in the second half of 2025. Tesla also revealed screenshots of a robotaxi ride hailing service. The prospects of new model models being produced earlier-than-expected, combined with potentially new sources of revenue, were enough to encourage many investors to purchase the company’s stock.

Meta Platforms announced earnings on the 24^th and exceeded the consensus expectations for both revenue and earnings-per-share. Revenue came in at $36.46 billion vs. the $36.12 billion consensus while adjusted earnings-per-share was $4.71 vs. the consensus was $4.30. However, Meta’s stock fell over 10% the following trading session off of lower-than-expected revenue guidance for the next quarter, $36.5 billion - $39 billion along with higher-than-expected capital expenditures guidance, $35 billion - $40 billion. If both come to fruition, it would place profit margins under pressure.

Trading Stats

For the month of April, shares traded of QQQ rose by 7.14% month-over-month along with notional value traded rising by 4.92% month-over-month. The month saw an average of 48.48 million shares trade each day (vs. 45.25 million last month) for a value of $20.94 billion (vs. $19.95 billion last month). That compares to averages of 66.69 million shares and $6.15 billion over the life of the fund, and 48.87 million shares and $18.85 billion for past 12 months.