QQQ is an ETF that is a part of the Nasdaq 100 Index. It comprises 102 securities and is the fourth most viewed ETF worldwide. The index does not include financial corporations and is built on the size of its market capitalization. The Invesco QQQ ETF used to be named The PowerShares QQQ Trust ETF. It's also referred to as the triple-Qs or the cubes. QQQ ETF is frequently regarded as a representative of how the technology sector trades. Its Nasdaq 100 Index, which the QQQ shares trade on, is founded on a modified capitalization technique. This modified approach uses the weights of each item depending on their capitalization in the marketplace.
Weighting can be used to restrict the influence of the most powerful companies and to ensure that the index is balanced by all its members. To achieve that, Nasdaq reviews the index's composition every quarter and adjusts the weightings if the distribution criteria are not satisfied. The Invesco QQQ ETF, instead of the Nasdaq 100 Index, is an exchange-traded security that trades through an exchange. It allows investors to invest in the 100 biggest non-financial companies on Nasdaq.
QQQ ETF Sectors
Invesco QQQ ETF is a fund that tracks a variety of industries, including communications services, information technology consumer discretionary, healthcare industrials, utility sectors, and consumer staples. The QQQ is balanced quarterly and reconstituted annually.
It is essential to note that some businesses commonly associated with technology are classified under different industries. For instance, Alphabet Inc. (the parent company of Google) and Meta Platforms, Inc. (META was previously known as Facebook) belong to the communications services sector. Amazon.com, Inc. is part of the consumer discretionary market.
QQQ ETF Top Holdings
Ten of the top stocks included in the Invesco QQQ ETF comprised about 51% of QQQ's holdings on Oct. 30th, 2021. The largest holding of QQQ ETF is Apple Inc. (AAPL). The Cupertino company was valued at more than $2 trillion in market capitalization as of December 2021. The company's future looks promising as a blockbuster line of merchandise continues to earn profits for the business.
In addition, Microsoft Corporation (MSFT), Alphabet, and Amazon all have strong cash flow. Most of these top stock holdings have consistently delivered their bottom line and can manage change without harming their shareholders. Microsoft has reinvented itself, shifting from old-fashioned products like Windows to cloud-based Azure. Amazon, on the other hand, invests a lot in expanding its business. Although it is most well-known as an e-commerce business, Amazon is a big logistical player too. Apart from that, it's a pioneer in cloud services offered to sellers.
Pros
Big Bull Market Rewards
If you're feeling optimistic today or are looking for an investment that is bullish for asset allocation, QQQ ETF could be an excellent option. The QQQ price tends to rise higher than the S&P 500 during bear markets, making it an excellent choice in sector-rotation strategies.
Potential for Long-Term Growth
QQQ stocks include various companies that develop innovative technologies, like computer systems and zero-emission vehicles. This means that a QQQ ETF has more potential for long-term growth. QQQ is also diverse across the technology sector. This means it's more secure to diversify capital allocations in the technology sector by investing in QQQ instead of individual investments.
Liquidity
Most traders are required to purchase and sell quickly, at an affordable cost. QQQ ETF QQQ ETF offers them this liquidity. The AUM of QQQ exceeded $212 billion in 2021, offering a huge market to traders.
Cons
Risk of a High Bear Market
As QQQ is known to outperform the S&P 500 in bull markets, it frequently underperforms in bear markets. Particularly, QQQ shares tend to fall when bear markets are in place. QQQ's share price fell substantially during the collapse of the dot-com bubble.
Risk of Volatility
The tech sectors are considered growth stocks and tend to be more volatile than the general market. This is why Nasdaq 100 can make Nasdaq 100 make much more monthly, daily, and annually significant movements than other indexes like the S&P 500. The fund, for instance, was able to earn annually returned -0.14 percent for 2018 as well as 39.12 percent in 2019.
Nasdaq-Only Focus
The fund is a Nasdaq-only concentration and excludes tech companies listed on different exchanges. For instance, Salesforce.com, Inc. (CRM) is listed on NYSE but is not part of the index. The same is true for Oracle Corporation (ORCL) and Block, Inc. (SQ), both of which have the same listing on the exchange.
