Investors who want to own stocks in the technology sector may decide to buy exchange-traded funds (ETFs) that track the Nasdaq. When investors refer to the Nasdaq, they typically refer to the tech-heavy Nasdaq Composite Index, which is composed of more than 2,500 companies. Companies in this group vary widely in size and quality, including struggling young companies and dominant, established enterprises.
The Nasdaq-100 Index is another way for investors to effectively track the broader Nasdaq Composite. The Nasdaq-100 tracks the 100 largest non-financial companies listed on the Nasdaq stock exchange, weighted according to a modified market capitalization strategy. A broad range of companies, including the world’s biggest tech stocks and retail, biotechnology, industrial, and healthcare stocks, comprise the index. The Nasdaq-100 also includes companies such as soft-drink maker PepsiCo Inc. (PEP), and video game maker Activision Blizzard Inc. (ATVI), which Microsoft Corp. (MSFT) plans to buy in an all-cash deal.
Investors seeking to diversify their holdings and mitigate risk may consider ETFs focused on the Nasdaq-100.
- The Nasdaq-100 is an index of 100 of the largest non-financial companies listed on the Nasdaq stock exchange.
- The Nasdaq-100 has underperformed the broader market in the past year.
- The two exchange-traded funds (ETFs) that meaningfully target the Nasdaq-100 are QQQM and QQQ.
- The top three holdings of both ETFs are Apple Inc., Microsoft Corp., and Amazon.com Inc.
Only two ETFs trading in the United States meaningfully target the Nasdaq-100: the Invesco QQQ (QQQ) and the Invesco Nasdaq 100 ETF (QQQM). A third fund, the Invesco ESG Nasdaq 100 ETF (QQMG), launched in October 2021, but it doesn’t have enough historical data to be included in Investopedia’s ranking, and it has a substantially different focus. The Nasdaq-100 Index has underperformed the broader market over the past year. As of Feb. 17, 2022, the Nasdaq-100 provided a total return of 4.2% over the past 12 months, below the S&P 500’s total return of 13.0%.
We examine both the QQQM and QQQ in closer detail below. All data below are as of Feb. 17, 2022.
- Performance Over One-Year: 3.3%
- Expense Ratio: 0.15%
- Annual Dividend Yield: 0.44%
- Three-Month Average Daily Volume: 915,875
- Assets Under Management: $3.8 billion
- Inception Date: Oct. 13, 2020
- Issuer: Invesco
QQQM, a slightly lower-cost version of QQQ, was launched by Invesco in October 2020. This newer “Q-mini” fund is almost identical to QQQ. Like its older counterpart, it also tracks the Nasdaq-100. However, it has lower fees, a smaller share price, and reinvests dividends, all of which may be more appealing to buy-and-hold savers. Unlike QQQM, we should note that the traditional QQQ’s combination of larger size and greater liquidity makes it a relatively cheaper option for many big institutional investors and high-speed trading firms.
- Performance Over One-Year: 3.2%
- Expense Ratio: 0.20%
- Annual Dividend Yield: 0.45%
- Three-Month Average Daily Volume: 71,936,424
- Assets Under Management: $187.3 billion
- Inception Date: March 10, 1999
- Issuer: Invesco
QQQ has become one of the most popular ETFs. The sheer magnitude of its daily trading volume suggests that it is widely preferred as a vehicle for short-term trading as opposed to long-term investing. Its high liquidity makes frequent trading relatively cheap. But that doesn’t exclude it from being useful for tactical exposure to the technology sector within a buy-and-hold strategy. QQQ is not the most diversified ETF given that it owns only non-financial companies and is heavily weighted to just a handful. Just over half of its holdings belong to the information technology sector, with about another third divided nearly equally between communication services and consumer discretionary stocks.
Below, we list the top 10 holdings for both QQQM and QQQ.
|Top QQQ and QQQM Holdings|
|Company Name (Ticker)||Percent of Total Assets||Description of Company|
|Apple Inc. (AAPL)||12.8%||Computers, software, services|
|Microsoft Corp. (MSFT)||10.0%||Computers, cloud services, software|
|Amazon.com Inc. (AMZN)||7.2%||Ecommerce, cloud computing|
|Tesla Inc. (TSLA)||4.0%||Electric vehicles|
|Nvidia Corp. (NVDA)||3.9%||Computing and chips|
|Alphabet Inc. (GOOG) (class C shares)||3.9%||Search engine, software, and cloud computing|
|Alphabet Inc. (GOOGL) (class A shares)||3.6%||Search engine, software, and cloud computing|
|Meta Platforms Inc. (FB) (class A shares)||3.4%||Social media|
|Cisco Systems Inc. (CSCO)||1.9%||Network hardware, software, and telecommunications equipment|
|Broadcom Inc. (AVGO)||1.8%||Semiconductors and infrastructure software|
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