2 Nasdaq ETFs for Q4 2022

Investors who want to own stocks in the technology sector may decide to buy exchange-traded funds (ETFs) that track the Nasdaq. When investors refer to the Nasdaq, they typically refer to the tech-heavy Nasdaq Composite Index, which is composed of more than 2,500 stocks. Companies in this group vary widely in size and quality, including struggling young companies and dominant, established enterprises. Because of its breadth, the Nasdaq is one of the most followed and quoted market indexes.

The Nasdaq-100 Index is another way for investors to effectively track the broader Nasdaq Composite. The Nasdaq-100 tracks the 100 largest non-financial companies listed on the Nasdaq stock exchange, weighted according to a modified market capitalization strategy. A broad range of companies, including the world’s biggest tech stocks and retail, biotechnology, industrial, and healthcare stocks, comprise the index. The Nasdaq-100 also includes companies such as popular coffee chain Starbucks Corp. (SBUX), and video game maker Activision Blizzard Inc. (ATVI), which Microsoft Corp. (MSFT) plans to buy in an all-cash deal. The acquisition is scheduled to be completed in Microsoft's fiscal year ending June 2023.

Investors seeking to diversify their holdings and mitigate risk may consider ETFs focused on the Nasdaq-100.

There are only two ETFs trading in the U.S. that meaningfully target the Nasdaq-100, excluding inverse and leveraged ETFs. They are the Invesco QQQ (QQQ) and the Invesco Nasdaq 100 ETF (QQQM). A third fund, the Invesco ESG Nasdaq 100 ETF (QQMG), launched in October 2021. But QQMG doesn't have enough historical data to be included in Investopedia's ranking and it has a substantially different focus. The Nasdaq-100 Index has underperformed the broader market over the past year. As of Aug. 22, 2022, the Nasdaq-100 provided a total return of -13.9% over the past 12 months, below the S&P 500’s total return of -5.4%.

We examine both the QQQM and QQQ in closer detail below. All data below are as of Aug. 22, 2022. In order to focus on the funds' investment strategy, the top holdings listed for each ETF exclude cash holdings and holdings purchased with securities lending proceeds except under unusual cases, such as when the cash portion is exceptionally large.

Invesco Nasdaq 100 ETF (QQQM)

• Performance Over One-Year: -13.9%
• Expense Ratio: 0.15%
• Annual Dividend Yield: 0.44%
• Three-Month Average Daily Volume: 739,572
• Assets Under Management: $5.7 billion
• Inception Date: Oct. 13, 2020
• Issuer: Invesco

Invesco launched QQQM, a slightly lower-cost version of QQQ, in October 2020. This newer “Q-mini” fund is almost identical to QQQ. Like its older counterpart, it also tracks the Nasdaq-100. However, it has lower fees, a smaller share price, and reinvests dividends, all of which may be more appealing to buy-and-hold savers. Unlike QQQM, we should note that the traditional QQQ’s combination of larger size and greater liquidity makes it a relatively lower cost option for many big institutional investors and high-speed trading firms.

Invesco QQQ (QQQ)

• Performance Over One-Year: -14.0%
• Expense Ratio: 0.20%
• Annual Dividend Yield: 0.45%
• Three-Month Average Daily Volume: 58,706,400
• Assets Under Management: $183.2 billion
• Inception Date: March 10, 1999
• Issuer: Invesco

QQQ has become one of the most popular ETFs. The sheer magnitude of its daily trading volume suggests that it is widely preferred as a vehicle for short-term trading as opposed to long-term investing. Its high liquidity makes frequent trading relatively cheap. But that doesn’t exclude it from being useful for tactical exposure to the technology sector within a buy-and-hold strategy. QQQ is not the most diversified ETF given that it owns only non-financial companies and is heavily weighted to just a handful. Just over half of its holdings belong to the information technology sector, with about another third divided nearly equally between communication services and consumer discretionary stocks.

Below, we list the top 10 holdings for both QQQM and QQQ. We note that QQQM has a 13.8% weighting for Apple, while QQQ has 13.7%. We use 13.8% in the table because QQQM outperformed QQQ slightly.

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