The ProShares UltraPro QQQ ETF's (NASDAQ: TQQQ) structure caused it to lose over 25% of its market value during the beginning of 2016 but regain most of its losses and be up 6.84% year to date (YTD), as of Aug. 25, 2016. The four key drivers that caused the fund's price to fluctuate were leverage, compounding of daily returns, macroeconomics and the performance of the NASDAQ-100.
TQQQ is a leveraged exchange-traded fund (ETF) that seeks to provide three times the daily return of the NASDAQ-100 Index, its underlying or benchmark, index. The NASDAQ-100 Index tracks nonfinancial stocks listed on the NASDAQ stock market. It primarily includes large-cap companies across nonfinancial sectors, such as information technology, consumer discretionary and health care. Due to the compounding of daily returns, the fund's returns will likely differ from three times the performance of its underlying index over the long term.
January and February 2016 Performance
In January and February 2016, the global equity market sold off significantly. Concerns of global macroeconomic growth rates and central bank policies caused the S&P 500 Index and NASDAQ-100 Index to fall by 5.07% and 6.84%, respectively. Thereafter, the S&P 500 fell another 5%, while the NASDAQ-100 was down 15% year to date (YTD) at one point in February 2016. Although the NASDAQ-100 dropped significantly in early February 2016, it ended the month down only 1.82%. Due to its leveraged exposure to the NASDAQ-100 and compounding of daily returns, TQQQ ended January 2016 down 21.13%. Additionally, the leveraged ETF ended February down 6.04%.
After a bumpy start to 2016, the U.S. equity market rebounded in March. The S&P 500 Index erased all of its losses during the first two months of 2016 and was up 6.60% in March. The NASDAQ-100 ended the month up 6.73% but was still down 1.93% on the year. The Federal Reserve's decision to proceed cautiously and not raise rates eased interest rate concerns. Additionally, crude's ascent to $40 from below $30 and China's stabilizing economic outlook attributed to the strong equity market. Due to the NASDAQ-100 Index's strong returns, TQQQ's leveraged exposure allowed the ETF to generate a return of 20.97% in March.
April and May 2016
Despite regaining most of its losses in March 2016, the NASDAQ-100 fell by 3.18% and TQQQ fell by 9.56% in April 2016. The largest constituents in the NASDAQ-100 posted poor earnings reports in late April, which was the primary driver of the index's and TQQQ's losses in April. In May 2016, global economic growth concerns subsided and the U.S. increase in inflation, which fueled the talks of a potential interest rate rise, caused the U.S. dollar to rally. The technology sector regained its losses in April due to weak quarterly earnings results by some big tech names, such as Apple Inc. (NASDAQ: AAPL) and Alphabet Inc. Class A (NASDAQ: GOOGL). The NASDAQ-100 was up 4.21%, while TQQQ was up 12.84% in May 2016.
June and July 2016
In June 2016, global equity markets had mixed results after the United Kingdom voted to leave the European Union, which heightened volatility at the end of the month. The S&P 500 Index ended up 0.26% and the Dow Jones Industrial Average (DJIA) ended up 0.95%, while the NASDAQ-100 underperformed and was down 2.35% in June. The poor performance of tech giants, such as Apple, Alphabet, Microsoft Corporation (NASDAQ: MSFT) and Amazon.com Inc.. (NASDAQ: AMZN), was the primary driver of the NASDAQ-100 Index's underperformance. Consequently, these drivers caused TQQQ to fall by 7.83% in June.
The technology sector lifted major market indexes in July 2016. The major tech giants drove the NASDAQ-100 Index, which was led by Amazon, Microsoft, Alphabet, Apple and Facebook Inc. (NASDAQ: FB). The NASDAQ-100 Index and TQQQ ended the month up 7.07% and 22.52%, respectively.
The Bottom Line
TQQQ experienced a high degree of fluctuation between January and July 2016 but ultimately ended up 3.31% YTD for the month end on July 31, 2016. Global macroeconomic concerns, the NASDAQ-100 Index's performance and leveraged exposure were the key drivers to the fund's performance over this period.