Debunking three myths about QQQ

One enduring piece of Silicon Valley folklore is that some of the world’s largest and most innovative technology companies got their start in the founders’ garage. The image of plucky founders toiling in a suburban California garage workshop on their world-changing inventions is appealing—and who doesn’t root for an underdog?

The only problem is that in reality, some of Silicon Valley’s most cherished creation stories vary from gross oversimplifications to flat-out falsehoods. Google (now Alphabet), Apple, Microsoft, and Amazon are among the celebrated tech companies that supposedly started in garages but the truth of their origins is actually a lot more complicated.¹ It’s a reminder that popular activities and creations sometimes generate myths that capture the public’s attention and endure.

Invesco QQQ ETF, which tracks the Nasdaq-100 Index, may not be quite as popular as these innovative companies and their ground-breaking products. But with over $222 billion in assets as of November 28, 2023, many have been interested in QQQ. As the 25^th anniversary of this innovative ETF approaches, now is a good time to dispel some of the more widespread misconceptions surrounding QQQ.

Myth #1: QQQ is just a tech fund

One common misconception is that QQQ is just a basket of technology stocks. Like many myths, this belief is somewhat understandable. Tech does comprise a significant share of the ETF and this growth-oriented sector has helped power QQQ’s performance over the years. Also, the constituents of the Nasdaq-100, which is tracked by Invesco QQQ, have a well-deserved reputation for technological innovation and adapting to shifting trends in the market.

The reality is that QQQ had 41.02% of its portfolio in non-tech sectors like consumer and healthcare as of November 30, 2023, further illustrating it’s clearly more than just a tech fund.

A look at some of QQQ’s non-tech sectors and associated top holdings

Another way to dispel this myth is to say that the technology sector hardly has a monopoly on innovation. For example, QQQ components also include energy companies’ modernizing grids and consumer brands harnessing artificial intelligence (AI) to help propel growth.

Myth #2: QQQ holds all Nasdaq-listed companies

Another common misconception related to QQQ is that it provides comprehensive exposure to the stocks listed on the Nasdaq Stock Exchange. In fact, QQQ tracks the Nasdaq-100 Index, a benchmark of the 100 largest non-financial companies listed on the Nasdaq. In other words, QQQ does not provide exposure to the Nasdaq Composite Index, which held 3,490 securities as of September 30, 2023, according to Nasdaq Global Indexes.

The ease of having access to the 100 largest non-financial Nasdaq-listed stocks may be appealing to some investors, while also providing exposure to some of the world’s best-known and innovative companies.

Mega-cap Nasdaq-100 companies also tend to be highly traded, which contributes to QQQ’s liquidity. QQQ, as the second most traded ETF based on average daily volume traded within the US, has long been considered one of the most liquid ETFs available to investors as of September 30, 2023.²

Myth #3: It’s easy to beat QQQ by picking stocks

QQQ has delivered solid long-term performance with a 15-year annualized NAV return of 19.94%.³ It may be tempting for investors to think they could do better by simply picking the best stocks in the Nasdaq-100 Index. Sounds easy, right? Well, it turns out it’s not.

Standardized performance. Fund performance shown at NAV. Performance data quoted represents past performance, which is not a guarantee of future results; current performance may be higher or lower than performance quoted. Investment returns, and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. An investor cannot invest directly in an index. Index returns do not represent Fund returns. Invesco QQQ's total expense ratio is 0.20%

QQQ has a top 1% (3 of 791) ranking in the Morningstar Large-Cap Growth category for the past 10 years as of September 30th, 2023, which made it very hard to beat over that period.

Source: Morningstar Inc. Morningstar rankings are based on total return, excluding sales charges and including fees and expenses versus all funds in the Morningstar category. Open-end mutual funds and exchange-traded funds are considered a single population for comparison purposes. Had fees not been waived and/or expenses reimbursed currently or in the past, the ranking would have been lower. The Morningstar one-year rank 3% (21 of 1216), three-year rank 5% (29 of 1125), five-year rank 1% (6 of 1040), 10-year rank 1% (3 of 791) as of September 30, 2023.

Key takeaways:

• Technology is Invesco QQQ’s largest sector, but the ETF also provides exposure to other areas of the economy such as healthcare and industrials.
• QQQ tracks the Nasdaq-100 Index, a simpler yet powerful approach that also helps boost the ETF’s liquidity.
• In the past 10 years, QQQ became one of the best performing large-cap growth funds.