Invesco QQQ ETF: Definition and Analysis

Written by Sean GraytokUpdated: 21st Mar 2022
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This article will discuss why many investors turn to the Invesco QQQ instead of the S&P 500, and will help you decide if it’s worth your time and money.

We’ll cover QQQ’s objectives, top holdings, sectors of interest, alternatives, and some of its shortcomings. 

What is the Invesco QQQ ETF?

QQQ is an ETF that passively tracks the Nasdaq-100 Index, which includes the 100 largest non-financial companies listed on the Nasdaq based on market cap.

The ETF allocates almost half of its holdings to Big Tech, including Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Tesla (TSLA), Meta (FB), and Google (GOOG). 

The rest of the fund is invested in other technology names across various industries. 

Understanding Invesco QQQ ETF

Invesco is the ETF provider that created QQQ to track the Nasdaq-100 Index. An index just measures a subset of the stock market and is not an investment vehicle – an ETF may or may not track a specific index, but it is an investment vehicle that can be bought and sold on an exchange.

So why is the Invesco QQQ ETF so popular?

Well, the Nasdaq is one of the three most-followed stock market indices, along with the S&P 500 Index (VOO) and the Dow Jones Industrial Average (DJIA).

Wall Street turns to these three indices to gauge the general health of the stock market.

Over the last decade, the Nasdaq has been the best performer of the indices due to its strong allocation to Big Tech – a trend that will likely continue for some time.

>> More: Motley Fool Review

Invesco QQQ ETF Sector Breakdown

While the Invesco QQQ ETF favors the technology sector, its sector breakdown includes seven different industries. Let’s look at the list of sectors and their respective allocations:

  • Information Technology (48%)
  • Consumer Services (19%)
  • Consumer Discretionary (17%)
  • Health Care (7%)
  • Consumer Staples (5%)
  • Industrials (3%)
  • Utilities (1%)

Invesco QQQ ETF Top Holdings

While the number and weight of holdings are subject to change, the Invesco QQQ ETF currently has 102 holdings. Here are QQQ’s top holdings:

  • Apple (AAPL) 12.10%
  • Microsoft (MSFT) 10.14%
  • Alphabet (GOOG, GOOGL) 7.79%
  • Amazon (AMZN) 7.35%
  • Nvidia (NVDA) 4.18%
  • Tesla (TSLA) 4.09%
  • Meta Platforms (FB) 3.45%
  • Broadcom (AVGO) 1.87%
  • Costco Wholesale (COST) 1.85%
  • Cisco Systems (CSCO) 1.76%

Invesco QQQ ETF top 10 holdings account for 53% of the entire fund.

Pros and Cons of the Invesco QQQ ETF

QQQ can be a great addition to your portfolio if it satisfies your unique risk-to-reward threshold.

Note that investors can have vastly different goals, and what you consider trash may be another person’s treasure

Let’s list some of the Invesco QQQ ETF’s pros and cons to help you decide.

Pros of QQQ

  • Concentrated Diversification: While QQQ consists mostly of tech, approximately 100 companies in the fund span across seven industries.
  • High-growth: Exposure to high-growth FAAMG companies.
  • Zombie-Proof: Not held back by zombie industries being disrupted by innovation (linear TV, brick and mortar retail, etc.)
  • Low Cost: The expense ratio is .20, meaning that for every $1,000 invested, you pay Invesco $2 for their service (this is an advantaged of ETFs over mutual funds)
  • High Liquidity: Frequent trading is relatively cheap and there’s low slippage on execution 

Cons of QQQ

  • Diversification: QQQ gets beaten up worse than the other indices when tech stumbles. If its allocation to growth stocks keeps you up at night, consider a fund with even more diversification, like the Vanguard S&P 500 ETF (VOO).
  • Volatility: Your portfolio may go up and down more frequently (compared to VOO) if you own QQQ due to the high-growth nature of the companies in the Nasdaq.

Is QQQ a Bubble?

Wall Street is in trouble if QQQ is a bubble – the Big Tech names that constitute 44% of QQQ are also major parts of other popular funds, like the S&P 500, albeit to a lesser degree.

However, many believe that tech companies are overvalued and due for a cooling-off period. While this may be true for corporations in the fintech or cybersecurity space, we don’t believe that the leaders of QQQ are bubbly.

Meta, Amazon, Apple, Microsoft, and Google are high quality, trillion-dollar companies that are still growing.

These are not your traditional companies of the past – they do not operate in the conventional market silos previously defined.

This means they will enter uncharted territory at times and fail publicly, possibly impacting their stock price. But they won’t stop – if they fail, they’ll find the people or resources to help them succeed.

They are the standard that every ambitious growth stock is trying to meet.

That doesn’t mean the best FAAMG stocks aren’t impervious to downturns, but it wouldn’t be their first.

And their company’s DNA is why it won’t be their last.

Alternatives to the Invesco QQQ ETF

  • TQQQ: The ProShares UltraPro QQQ is a leveraged ETF that seeks a return of 3x QQQ for a single day. This means if QQQ is up 2% on the day, then TQQQ is up 6% on the day. Note that this fund is very risky and is not a long-term investment. Consider SQQQ if you want the exact opposite of TQQQ. 
  • SQQQ: The ProShares UltraPro Short QQQ is a leveraged ETF that captures a -3x return of QQQ for a single trading day, hence it’s the opposite of TQQQ. If you’re confident that Nasdaq companies are in for a rough day on Wall Street, consider buying SQQQ. Again, this vehicle is for short-term strategies only.
  • VGT: The Vanguard Information Technology Index Fund ETF is a technology pure-play compared to QQQ’s tech bias. Note that VGT has a lower expense ratio (.10 vs .20) but does not include the likes of Facebook, Amazon, Google, or Tesla in its fund.
  • VOO: The aforementioned Vanguard S&P 500 Index ETF is the crown jewel of benchmark funds. It tracks the performance of more than 500 companies across all 11 sectors, therefore providing more diversification than QQQ. Investing in VOO is to “own the market,” a strategy that has returned 8-11% annually, on average, for decades.
  • ARKK: Cathie Wood’s ARK Innovation ETF is the world’s largest active ETF, which invests in disruptive companies driving or benefiting from innovation in various sectors, from technology to financials, to healthcare. ARKK has an even stronger bias towards growth stocks than QQQ, and invests in more small to mid-cap stocks. 

>> Related: Best Nasdaq ETFs

How to Invest in the Invesco QQQ ETF

We recommend using Vanguard or Charles Schwab to invest in QQQ because they offer various account types and have been trusted for decades. They are passive-investing royalty and offer a host of low-cost ETFs similar to QQQ.

In terms of researching QQQ and the companies it invests in, we recommend going with Motley Fool.

Unlike other stock advisors, the Motley Fool has conviction in their stock picks and are not afraid to put their reputation on the line.

Invesco QQQ ETF: Frequently Asked Questions

What does QQQ mean?

QQQ is the ticker symbol for the ETF that passively tracks the Nasdaq-100 Index, consisting of the 100 largest and most actively traded non-financial stocks on the Nasdaq.

What does QQQ stand for in the stock market?

QQQ is the ticker symbol for the Invesco QQQ Trust, an exchange-traded fund based on the Nasdaq-100 Index.

The Index includes 100 of the largest domestic and international non-financial companies listed on the Nasdaq Stock Market based on market cap.

What are the fees for QQQ?

The expense ratio for QQQ is 0.20%, which is pricier than most S&P funds (VOO is 0.10%), but on the low end compared to mutual funds or thematic ETFs.

What is QQQ dividend?

Invesco QQQ ETF granted a 0.52% dividend yield in 2020, compared to 1.33% from VOO.

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Bottom Line: Invesco QQQ ETF

Investors confident in tech’s continued dominance should consider QQQ over the traditional S&P 500.

The fund provides concentrated exposure to the world’s most innovative companies while maintaining some level of diversification.

The companies that lead QQQ each have a recipe of innovation that can be applied to any business endeavor, and while it’s unlikely each of them will remain at the top forever, we aren’t seeing an end to their dominance any time soon.

More Investing Resources:

This article is for informational purposes only, and it is not intended to be investment advice. Read our editorial guidelines and public equities research methodology to learn more about how we researched the QQQ ETF.

Sean Graytok
Sean Graytok

Sean Graytok is our Co-Founder and is a recognized expert in investing, financial management, and Bitcoin. His work has been cited in leading industry publications, such as InvestorPlace and Business Insider. Sean is interested in the people and companies who are driving technological innovation.