11 Nasdaq-100 ETFs and Mutual Funds to Buy
The QQQ is the best-known ETF that invests in the popular Nasdaq-100 Index. But several other funds are at your disposal, too.
Forget the S&P 500 and even the Dow Jones Industrial Average. The big name in big-name indices – at least in the past few years – is the Nasdaq-100.
The Nasdaq-100 Index, which began in 1985, is a select slice of the larger Nasdaq Composite's 100 largest nonfinancial companies. Historically (and currently), it has been dominated by technology stocks, which currently account for roughly half the fund's assets, and it also holds healthy slugs of high-growth communications and consumer plays.
This tech-heavy index has been a monster outperformer for years. The Nasdaq-100 Index has run up about 445% since the start of 2011, lapping the S&P 500 (180%) and the Dow (148%), and even widely beating the broader Nasdaq Composite (348%).
That has been a boon for Invesco (IVZ), whose Invesco QQQ Trust (QQQ) has allowed investors to take advantage of those rapid gains for decades. Assets in the QQQ ETF have exploded, and the company hopes to further leverage the QQQ's success via some newly announced investment products tied to the fund (more on those in a moment).
"When it launched 20 years ago, the Invesco QQQ ETF was a pioneer in simplifying how investors gained access to companies within the NASDAQ-100 Index," says John Hoffman, Head of Americas, ETF & Indexed Strategies at Invesco. "By building this suite with Nasdaq, Invesco will enable clients to select the personalized combination of strategies that best suits their needs and time horizons."
Read on as we examine 11 Nasdaq-100 ETFs and mutual funds. A few of these funds are a direct play on the index itself, while the rest are various ways of slicing, dicing and even amplifying the Nasdaq-100.
Data is as of Oct. 12.
Invesco QQQ Trust
- Assets under management: $141.6 billion
- Expenses: 0.20%, or $20 annually for every $10,000 invested
The Invesco QQQ Trust (QQQ, $294.53) is the fund that started it all. The fund kicked off in March 1999 – seemingly unfortunate timing for its first few years, given the dot-com bubble bust that happened shortly thereafter. But long-term investors aren't complaining … and neither is Invesco, which has watched assets blossom, especially over the past few years.
"At the end of the third quarter of 2010, QQQ had $22 billion in assets according to CFRA's First Bridge ETF database," writes Todd Rosenbluth, head of ETF & Mutual Fund Research at CFRA. "The fund grew to $38 billion three years later, but was still at the same mark at the end of the third quarter of 2016 before taking off. By the end of September 2018, QQQ assets doubled to $74 billion and as of early September 2020, the fund's asset base exceeded $140 billion before closing the quarter with $137 billion.
"As of October 9, the fund remained a $137 billion juggernaut."
As for its innards, the QQQ ETF is a simple index fund that tracks the Nasdaq-100. That means at the moment, it's 48% invested in information technology, 19% each in consumer discretionary and telecommunications, 6% in health care, 5% in consumer staples and the rest peppered between industrials and utilities.
Top holdings include familiar tech names such as Apple (AAPL, 13.6% of assets) and Microsoft (MSFT, 10.7%), but also consumer giant Amazon.com (AMZN, 11%), and telecommunications stocks Alphabet (about 7% spread between its GOOG and GOOGL shares) and Facebook (FB, 4%).
It's a little misleading to call the Nasdaq-100 a broad-market index because there are so many areas of the broad market that are quiet or downright missing in QQQ. But it's not a wholesale tech ETF, either.
It is what it is, mostly for better than for worse.
Invesco Nasdaq 100 ETF
- Assets under management: $288.5 million
- Expenses: 0.15%
The Invesco Nasdaq 100 ETF (QQQM, $121.08*) is one of Invesco's newest products, launching on Oct. 13, 2020. And it is, quite literally, just a cheaper version of the QQQ. At 0.15% annually, it costs 5 basis points less than its sister fund (a basis point is one one-hundredth of a percentage point).
What's the point?
The QQQ ETF is an extremely liquid fund that changes hands at a rate of about 47 million shares daily, according to Morningstar. As a result, it's able to create tight bid-ask spreads, which are ideal for traders.
Invesco's QQQM is geared toward buy-and-hold investors "most focused on cost-savings." Specifically, if you want to buy the Nasdaq-100 Index and hold on to it for a long time, your most significant cost savings will be from the 5-bps discount in QQQM. Traders, however, will benefit more from entering and exiting trades with pinpoint precision, which the QQQ's trading volume offers.
Succinctly, if you're a buy-and-hold investor, you're better off with QQQM.
* QQQM began trading on Oct. 13, so there is no Oct. 12 closing price for this fund. The price reflects the Oct. 13 open.
USAA Nasdaq-100 Index Fund
- Assets under management: $3.5 billion
- Expenses: 0.48%
The Nasdaq-100 isn't just for ETFs.
It's fair to call the USAA Nasdaq-100 Index Fund (USNQX, $33.85) something of a "hidden gem." That's because despite being almost as old as the QQQ, launching in October 2000, it has just $3.5 billion in assets at the moment. And like QQQ, it's a strong performer, ranking in the top 10% of funds in its category (large growth) in every long-term time frame.
The 0.48% in expenses are more than you'd pay for the Invesco QQQ Trust (and most indexed ETFs, for that matter). But it's half the Lipper category average expense of 0.96%, so USNQX is on the cheap side for mutual funds ... which it should be, given that this is an indexed product.
USAA Nasdaq-100 Index Fund's holdings and breakdown are virtually identical to the QQQ, which is to be expected. They both just track the index.
Invesco Nasdaq 100 Index Fund
- Assets under management: N/A*
- Expenses: 0.15%**
The Invesco Nasdaq 100 Index Fund (IVNQX, N/A*), which was launched alongside QQQM, allows investors to track the Nasdaq-100 Index in mutual fund form.
This fund, which will provide similar coverage as QQQ and QQQM, was created to allow Invesco to reach a broader audience. Specifically, it's aimed at retirement accounts, which often can't access ETFs.
The only disadvantage here is a minor one: These are Class R6 shares, which are primarily intended for retirement plans and shareholders of omnibus intermediaries that meet certain standards, as well as for institutional investors. In short, it's unlikely you'll be able to access these via a traditional brokerage account.
But your traditional brokerage account will have access to QQQ and QQQM, so it's not an issue.
* Not yet available at time of writing.
** The management fee of 0.15% is for up to $2 billion in assets; 0.14% for over $2 billion.
Direxion Nasdaq-100 Equal Weighted Index Shares
- Assets under management: $296.8 million
- Expenses: 0.35%
Invesco might be the most well-known fund to leverage the Nasdaq-100, but Direxion offers an interesting take on the index, too.
The Direxion Nasdaq-100 Equal Weighted Index Shares (QQQE, $68.19) invests in an equal-weighted version of the Nasdaq-100. Every March, June, September and December, the index is rebalanced, resetting each of its 100 stocks at 1% of assets. Their weight will fluctuate depending on how they perform over the next three months, but once the next rebalancing occurs, they're all set back onto equal footing.
The good news? There's far less single-stock risk. Consider that QQQ has three stocks that each account for more than 10% of its performance, so a bad stretch for any one of those stocks could cancel out the progress of several smaller-weighted constituents, thus dragging on the ETF's returns. This tends to result in less volatility.
The bad news? Long-term, it doesn't allow its winners to ride. The reason the likes of Apple and Microsoft are an overwhelming presence in the major indices (which tend to be weighted by market capitalization) is simply because they've grown so much. This allows these indices to increasingly benefit in their upside.
Ultimately, the choice between QQQE and QQQ just comes down to what you're comfortable with from a risk perspective.
Invesco Nasdaq Next Gen 100 ETF
- Assets under management: $6.4 million
- Expenses: 0.15%
The Invesco Nasdaq Next Gen 100 ETF (QQQJ, $26.97) doesn't actually invest in the Nasdaq-100, but instead the index's junior varsity squad. While the QQQ ETF tracks the 100 largest Nasdaq non-financials, the Next Gen 100 ETF tracks the next 100 largest stocks, hence the name.
There's little to go on at this point from a performance perspective, but the current makeup does share some similarities with QQQ. Tech is king, at 46% of the portfolio, and communications and consumer discretionary stocks both have significant presences, at roughly 10%-11% each. What sets it apart for now is a much larger position in health care (nearly 20% to QQQ's 6%), as well as in industrials (9% to QQQ's 2%).
QQQJ certainly is less top-heavy than QQQ. The Invesco QQQ Trust's top 10 holdings make up 57% of the 100-stock fund's weight. But this "junior" fund only dedicates about 22% of its assets to its top 10 stocks, which include the likes of user-authentication cloud firm Okta (OKTA), semiconductor company Marvell Technology (MRVL) and trucking specialist Old Dominion Freight Line (ODFL).
* QQQJ began trading on Oct. 13, so there is no Oct. 12 closing price for this fund. The price reflects the Oct. 13 open.
ProShares Inverse and Leveraged Nasdaq-100 ETFs
- Expenses: 0.95%
This last group of ETFs, for the most part, aren't for the faint of heart – and more accurately, they're not for buy-and-hold investors.
ProShares offers a number of ETFs that provide leveraged exposure to the Nasdaq-100 Index, as well as inverse exposure to the index.
"Leveraged" exposure typically means the fund produces multiple times the performance of an index on a daily basis. So, in the case of the ProShares Ultra QQQ (QLD, $102.41), you're getting 2x the daily performance of the Nasdaq-100 Index. That gives you the opportunity to double your gains … but also to double your losses. The ProShares UltraPro QQQ (TQQQ, $154.26) provides 3x positive exposure.
"Inverse" exposure means you're getting the inverse of an index's performance. So, let's say the Nasdaq-100 Index goes down 1% tomorrow, the ProShares Short QQQ (PSQ, $15.53) should gain 1% (minus expenses, of course).
You can combine the two ideas – leverage and inverse – via the ProShares UltraShort QQQ (QID, $8.35), which offers -2x exposure, and the ProShares UltraPro Short QQQ (SQQQ, $19.62), which is a -3x fund.
We've previously noted that the ProShares Short S&P500 ETF (SH), which provides inverse (-1x) exposure to the S&P 500, is a fairly safe and straightforward hedge against the market, and the same goes with PSQ (-1x Nasdaq-100). If the market heads higher, these products naturally will lose value, but not at an accelerated rate like their leveraged brethren.
However, 2x and 3x products are best left to day traders and the pros. A wrong bet on these products can compound in a hurry, and generally are too heavy on risk for most individual investors.