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Market Pulse: Comparing NASDAQ ETFs

David Vomund
Provided

The Invesco QQQ Trust (QQQ) is the fifth largest exchange-traded fund. It tracks the largest 100 stocks (actually 103 stocks) in the Nasdaq Composite, an index that is heavily weighted in technology stocks.

Apple, Microsoft, Amazon, Facebook and Alphabet are the five largest holdings and represent 42% of the portfolio. Those companies have outperformed others for several years and the fund’s assets have increased six-fold over the last 10 years.

Recently, Invesco introduced the Nasdaq 100 ETF (QQQM). This ETF has nearly the same holdings as QQQ, but it has a lower expense ratio. Whereas the QQQ’s expense ratio is .20% of the trust’s assets, the QQQM’s expense ratio is .15%. Is Invesco competing against itself?

Cutting ETF fees is common in today’s competitive market, but it usually isn’t from the same company. Invesco’s belief is that, while the two ETFs will move in tandem, they are designed for different investors. The QQQ is for traders, while the QQQM is for those with a longer time horizon or with smaller amounts to invest.

With an average daily volume of more than 50 million, the QQQ Trust is one of the most liquid ETFs on the market. Institutional players can quickly and easily buy and sell this ETF and the spread between its bid and asking price is usually less than two cents. The downside is that this ETF is one of the more expensive to hold compared to other popular ETFs.

The Nasdaq 100 ETF (QQQM) has different characteristics. It is cheaper to hold but more expensive to trade. On the day this was written, the ETF traded 45,000 shares and the spread was five cents on a price that is less than half of the QQQ. Over time this fund will surely become more popular, but right now institutional traders wouldn’t be able to quickly buy or sell it without affecting the bid or asking price.

While both funds track well established technology companies, Invesco also introduced an ETF that will hold fewer mature names but more “up and coming” companies. That ETF is Invesco Nasdaq Next Gen 100 ETF (QQQJ). Time will tell if the fund achieves its objectives.

While short-term traders will continue to prefer the QQQ, buy-and-hold investors who want exposure to the largest technology companies would do better holding the QQQM or another low-cost technology fund.

David Vomund is an Incline Village-based Independent Investment Adviser. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.


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