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 companies. Companies in this group vary widely in size and quality, including struggling young companies and dominant, established enterprises.

The Nasdaq-100 Index is another way for investors to effectively track the broader Nasdaq Composite. The Nasdaq-100 tracks the 100 largest nonfinancial 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 video game maker Activision Blizzard Inc. (ATVI) and soft-drink maker PepsiCo Inc. (PEP).

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

Key Takeaways

  • The Nasdaq-100 is an index of 100 of the largest nonfinancial companies listed on the Nasdaq stock exchange.
  • The Nasdaq-100 has underperformed the broader market in the past year.
  • The two exchange-traded funds (ETFs) that meaningfully target the Nasdaq-100 are QQQ and QQQM.
  • The top three holdings of both ETFs are Apple Inc., Microsoft Corp., and Amazon.com Inc.

Only two ETFs trading in the United States meaningfully target the Nasdaq-100: the Invesco QQQ (QQQ) and the Invesco Nasdaq 100 ETF (QQQM). The Nasdaq-100 Index has slightly underperformed the broader market over the last year. As of Aug. 27, 2021, the Nasdaq-100 provided a total return of 30.3% over the past 12 months, just below the S&P 500’s total return of 31.4%.

We examine both the QQQ and QQQM in closer detail below. All data below are as of Aug. 27, 2021.

Invesco QQQ (QQQ)

  • Performance Over 1-Year: 29.9%
  • Expense Ratio: 0.20%
  • Annual Dividend Yield: 0.47%
  • 3-Month Average Daily Volume: 34,603,012
  • Assets Under Management: $188.5 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.

The fund has one of the lowest expense ratios in the industry, making annual fees for the long-term investor relatively inexpensive.

Also, QQQ is not the most diversified ETF, given that it owns only nonfinancial companies and is heavily weighted to just a handful. About 49.1% of its holdings belong to the information technology sector, followed by a 19.6% allocation in communication services and 16.3% in consumer discretionary stocks.

Invesco NASDAQ 100 ETF (QQQM)

  • Performance Over 1-Year: N/A
  • Expense Ratio: 0.15%
  • Annual Dividend Yield: 0.36%
  • 3-Month Average Daily Volume: 194,755
  • Assets Under Management: $1.7 billion
  • Inception Date: Oct. 13, 2020
  • Issuer: Invesco

QQQM, a slightly cheaper version of QQQ, was launched by Invesco 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.

We should note that the traditional QQQ’s combination of larger size and greater liquidity makes it a relatively cheaper option for many big institutional investors and high-speed trading firms. Because the Q-mini is still so new, it does not yet have a full year of performance data. Below, we list its top 10 holdings, which are the same for the traditional QQQ.

Top QQQ and QQQM Holdings
Company Name (Ticker) Percent of Total Assets Description of Company
Apple Inc. (AAPL) 11.1% Computers, software, services
Microsoft Corp. (MSFT) 10.1% Computers, cloud services, software
Amazon.com Inc. (AMZN) 7.6% Ecommerce, cloud computing
Alphabet Inc. (GOOG) (class C shares) 4.2% Search engine, software, and cloud computing
Facebook Inc. (FB) (class A shares) 4.0% Social media
Alphabet Inc. (GOOGL) (class A shares) 3.9% Software, search engine, and cloud computing
NVIDIA Corp. (NVDA) 3.9% Computing and chips
Tesla Inc. (TSLA) 3.8% Electric vehicles
PayPal Holdings Inc. (PYPL) 2.2% Online payments
Adobe Inc. (ADBE) 2.2% Software for publishers and creators

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