Celebrating its 25th anniversary on Sunday, one of Wall Street’s most cherished investment instruments remains firmly in the spotlight, defying any notion of fading into obscurity as it matures.
The Invesco QQQ Trust, colloquially known as “the Qs” or simply QQQ, has been synonymous with growth stock investing since its inception on March 10, 1999.
Tracking the Nasdaq-100 Index, the fund has amassed approximately $250 billion in assets under management, securing its position as the fifth-largest ETF in the United States. Year to date, it has welcomed around $7 billion in fresh inflows, according to FactSet data.
Marking its silver anniversary on a buoyant trajectory, the fund achieved a milestone on March 1 by reaching a record high and maintained its vigor, closing within 2% of that peak on Friday. Its upward momentum persists, despite a remarkable surge of nearly 55% in 2023.
Amid discussions surrounding the QQQ’s impressive 2023 rally, and the broader U.S. market dynamics, a focal point emerges—the notable dominance of a select few key stocks.
Yet, historical analysis reveals a recurring theme: analogous to previous robust periods, a handful of stocks have consistently driven approximately 20% or more of the index’s performance. However, caution is warranted, as some of these exceptional years have foreshadowed significant reversals.
Reflecting on the QQQ’s standout years, Ryan McCormack, core equity strategist representing Invesco’s exchange-traded funds, underscores the uniqueness of each period. He notes, “Each one kind of looks and feels a little bit different.”
McCormack emphasizes that prosperous periods are typically characterized by the prominence of stocks with heavier weights or overweights relative to the benchmark index.
Evolution over the Years
Examining historical rallies unveils a notable evolution in the significance of individual stocks from one market cycle to another. For instance, Microsoft stood out as the sole top 10 contributor in both the 1999 and 2023 rallies.
In the 1999 surge, chip stocks Intel and Qualcomm played pivotal roles, whereas in the recent rally, they were eclipsed by competitors Nvidia and Broadcom.
Furthermore, the composition of the fund itself changes over time, aligning with adjustments to the Nasdaq-100. In the past year alone, the index introduced 10 new stocks and underwent its third-ever special rebalance, as reported by Nasdaq.
Over the years, several key stocks have exited the fund, including former top performers like Nextel Communications and Sun Microsystems, following acquisition deals.
Over 25 years, many of the fund’s flagship companies have transformed from emerging entities to globally recognized powerhouses, boasting substantial cash reserves.
“The Qs have become more ingrained, not just in portfolios, but in our lives. You’re using Apple devices, you’re using Amazon and Meta,” observed Todd Sohn, ETF strategist at Strategas.
While commonly associated with the technology sector, the QQQ encompasses giant corporations from diverse industries, such as Pepsico and Amgen. Moreover, some of the major tech stocks have undergone significant transformations over time, leading them to be classified beyond technology according to certain classification systems.
“The companies have been very nimble. They look really, really different,” remarked McCormack, highlighting the dynamic evolution of constituent companies compared to the index’s earlier composition.
Alternative Options: Explore Other Investment Paths in the ETF Landscape
Over the past quarter-century, the ETF landscape has witnessed a significant expansion in competition for the QQQ, including from within Invesco’s offerings. The firm presents several funds akin to the QQQ, potentially offering a more suitable option for certain investors.
For instance, the Invesco Nasdaq 100 ETF (QQQM) emerges as a notable alternative. Sporting a lower management fee compared to its predecessor, it also boasts the capability to reinvest dividends, thereby potentially enhancing performance.
“In plain English, it should track the index even closer because it has a lower cash balance,” elucidated McCormack.
Despite its relatively brief existence of less than four years, this fund has already amassed over $20 billion in total assets, underscoring its rapid growth and appeal to investors.
