Who knows which technology stocks will dominate tomorrow’s market? The triple-Q knows.
The triple-Q, formally the Invesco QQQ Trust, is a market-weighted exchange-traded fund (ETF) that tracks the Nasdaq 100 index. It is currently the second-most traded ETF in the U.S. based on average daily volume.
Top holdings include the profit-churning technology giants that dominate the headlines today, yesterday and in the future.
Right now the most notable are the so called Magnificent (MAG) 7 stocks; Alphabet (Google), Amazon, Apple, Meta (Facebook), Microsoft, Nvidia and Tesla.
That’s not to be confused with the FAANG stocks of the 2010s; Facebook (Meta), Amazon, Apple, Netflix and Google (Alphabet).
The triple-Q as a whole has advanced by 25 per cent over the past year and 520 per cent over the past decade; driven by advances in artificial intelligence (AI), cloud computing and cyber security.
If you put $1,000 in the triple-Q a decade ago, it would be worth over $5,800 today; $6,200 if you include the dividends paid out during that time, according to The Motley Fool.
About half of the Nasdaq 100 pay dividends and the rest are careful with their profits. The latest annual yield from the triple-Q was under half a per cent once you strip out the 0.2 per cent annual fee for the U.S. dollar version. It’s a growth investment.
With all growth investments, valuations are hard to quantify as big share prices chase big earnings. The Nasdaq 100 has advanced through black swan events like the 2008 global financial meltdown and 2020 pandemic. Investors can pick a dip.
What the future holds for the triple-Q
Only the triple-Q knows which technologies will drive the next profit frenzies to 2050 and beyond because ETFs that track dynamic sectors like technology evolve over time. Since holdings are market weighted (based on a stock’s current value), weak companies are flushed out as their share prices fall to make room for stronger companies with rising share prices.
If you bought the QQQ in the wake of the 2000 tech meltdown, you were invested in the technology heavyweights of the day like Palm Inc., Red Hat, JDS Uniphase and Canada’s Research in Motion. Twenty-five years later those companies are shells of themselves yet the value of the Nasdaq has grown by over 12 times. Data provided by the Nasdaq shows the turnover of the Nasdaq 100 since the turn of the century has averaged 13 securities per year. That number includes periodic changes due to mergers and acquisitions, and de-listings.
About half of the companies currently in the Nasdaq 100 were not in the index 10 years ago. If you buy the QQQ today, there’s no telling which companies will be top holdings in ten years but it’s a sure thing they will be the strongest performers.
How ETFs can take the guesswork out of any sector
While the Nasdaq is generally considered a technology index, only sixty per cent are actually technology stocks. There are many pure technology and technology sub-sector ETFs such as biotech and genomics that are better suited to advance the big tech names of tomorrow.
There are countless market-weighted ETFs that track all major sectors such as the S&P 500 and S&P/TSX Composite indexes, and sub-sectors such as home builders and finance.
It’s important for investors to know market-weighted ETF performance normally lags the index once the annual management fee is deducted. That’s no big deal with the 0.2 per cent imposed by the triple-Q but they could be higher with other managers.
Canadian dollar-hedged ETF fees also tend to be higher, so buying in U.S. dollars brings more bang for the buck.
