Investors Eye Invesco QQQ Trust Amid Nasdaq Volatility
The Nasdaq Composite (NASDAQINDEX: ^IXIC) has experienced a significant decline as President Donald Trump advocates for major changes in U.S. trade policy. On March 6, the technology-heavy index entered correction territory, and it officially closed in bear market territory on April 4. However, historical trends suggest this may present a buying opportunity for patient investors.
Since 2010, the Nasdaq Composite has averaged a return of 21% in the year following its first corrective close. Notably, the index has consistently recovered losses from past pullbacks, suggesting no reason for a different outcome this time. Thus, while past performance is not an assurance of future results, investors may have justified optimism for a rebound in the upcoming year.
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This trend makes the Invesco QQQ Trust (NASDAQ: QQQ) an attractive investment option currently. Below are some key details.
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The Invesco QQQ Trust: An Index Tracking the Nasdaq-100
The Invesco QQQ Trust serves to reflect the performance of the Nasdaq-100, which comprises the 100 largest non-financial companies listed on the Nasdaq Stock Exchange. This index fund is heavily concentrated in U.S. stocks, particularly in the information technology and communication services sectors. Notably, the “Magnificent Seven” stocks represent roughly 42% of its total assets.
The largest holdings in the Invesco QQQ Trust, organized by weight, are as follows:
- Apple: 8.8%
- Microsoft: 8.3%
- Nvidia: 7.8%
- Amazon: 5.6%
- Alphabet: 5.2%
- Broadcom: 4%
- Meta Platforms: 3.4%
- Costco Wholesale: 3.1%
- Netflix: 2.8%
- Tesla: 2.6%
The Invesco QQQ Trust also provides exposure to several emerging technologies that are expected to generate substantial returns for investors in the coming years. These include advancements in artificial intelligence, cloud computing, autonomous robotics, and quantum computing.
The Invesco QQQ Trust’s Historic Performance Against the S&P 500
The S&P 500 (SNPINDEX: ^GSPC) is widely recognized as the primary benchmark for the U.S. Stock market, covering approximately 80% of domestic equities by market capitalization. While S&P 500 index funds have traditionally been reliable investments, the Invesco QQQ Trust has outperformed the S&P 500 consistently.
- 5 Years: The S&P 500 gained 105% over the last five years, compared to 123% for the Invesco QQQ Trust.
- 10 Years: Over a decade, the S&P 500 returned 209%, while the Invesco QQQ Trust surged to 362%.
- 15 Years: The S&P 500 climbed 494% over the past 15 years, whereas the Invesco QQQ Trust rose 949%.
- 20 Years: In the last 20 years, the S&P 500 increased by 587%, while the Invesco QQQ Trust saw a remarkable gain of 1,390%.
However, it is important to note that the Nasdaq-100’s reliance on a few major stocks exposes the Invesco QQQ Trust to concentration risk. Disappointing performance from even a small number of these companies could lead to poor returns. Nevertheless, as of April 7, the “Magnificent Seven” had a weighted price-to-earnings ratio of 22.6, representing the lowest valuation since January 2023, according to JPMorgan Chase.
Moreover, these companies are significantly more profitable than the other 493 firms in the S&P 500. The “Magnificent Seven” collectively reported a 37% earnings growth last year, while the remaining S&P 500 companies posted only 7%. Projections show the “Magnificent Seven” set to grow earnings by 17% in 2025, contrasted with 9% for the other 493 companies, according to LSEG.
Lastly, the expense ratio associated with the Invesco QQQ Trust is noteworthy. With an expense ratio of 0.2%, shareholders will pay $20 for every $10,000 invested. In comparison, the average expense ratio for U.S. index funds and mutual funds is around 0.36%.
Is Now the Right Time to Invest $1,000 in Invesco QQQ Trust?
Before purchasing Stock in the Invesco QQQ Trust, consider this:
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JPMorgan Chase is an advertising partner of Motley Fool Money. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is also a member of The Motley Fool’s board. Randi Zuckerberg, previously in market development at Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is involved with The Motley Fool’s board. Trevor Jennewine holds positions in Amazon, Nvidia, and Tesla. The Motley Fool holds positions in and endorses Alphabet, Amazon, Apple, Costco Wholesale, JPMorgan Chase, Meta Platforms, Microsoft, Netflix, Nvidia, and Tesla. The Motley Fool recommends Broadcom and offers insights on options related to Microsoft. The Motley Fool follows a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
