Invesco QQQ (previously known as Powershares QQQ), also known colloquially as the "triple-Qs" or "cubes", is a widely held and traded exchange-traded fund (ETF) that tracks the Nasdaq 100 Index. Its focus is on large international and U.S. companies in the technology, health care, industrial, consumer discretionary, and telecommunications sectors. 

Key Takeaways

  • The Invesco QQQ is a popular ETF that tracks the Nasdaq 100 index.
  • This technology-heavy index is dominated by big tech names like Apple, Amazon, Google, and Facebook.
  • The ETF has an expense ratio of 0.2% and an average daily trading volume of around $15 billion.

The Nasdaq 100 Index

The Nasdaq 100 Index is composed of 100 of the largest international and domestic companies, excluding financial companies, that are listed on the Nasdaq stock exchange, based on market capitalization. Therefore, QQQ is heavily weighted toward large-cap technology companies and is often viewed as a snapshot of how the technology sector is trading. 

The index is constructed on a modified capitalization methodology. This modified method uses individual weights of included items according to their market capitalization. Weighting allows constraints to limit the influence of the largest companies and balance the index with all members. To accomplish this, Nasdaq reviews the composition of the index each quarter and adjust weightings if the distribution requirements are not met. 

The QQQ ETF, as opposed to the actual Nasdaq 100 index, is a marketable security that trades on an exchange, offering traders a way to invest in the largest 100 non-financial companies listed on the Nasdaq.

QQQQ

QQQQ was the original ticker symbol for the Nasdaq 100 Trust, which dropped one 'Q' in its ticker.

QQQ Sub-Sectors

The QQQ tracks the information technology, consumer discretionary, health care, consumer staples, industrials and telecommunication services sectors. QQQ is rebalanced quarterly and reconstituted annually.

As of Dec. 31, 2019, the sector breakdown of QQQ was: 

  • Information technology: 47.35%
  • Telecommunication services 20.88%
  • Consumer discretionary: 14.70%
  • Health care: 7.23%
  • Consumer staples: 5.98%
  • Industrials: 2.68%

Top Holdings

The top 10 holdings of QQQ, as of Dec. 31, 2019, were:

  • Apple (AAPL): 11.59%
  • Microsoft (MSFT): 10.69%
  • Amazon.com (AMZN): 8.14%
  • Facebook (FB): 4.39%
  • Alphabet (GOOGL) Class A shares: 4.09%
  • Alphabet (GOOG) Class C shares: 4.08%
  • Intel (INTC): 2.95%
  • Cisco Systems (CSCO): 2.31%
  • Comcast (CMCSA): 2.31%
  • PepsiCo (PEP): 2.17%

Apple, by far the most important company for QQQ investors, has a market cap of around $1.28 trillion as of Mar. 5, 2020 — the largest in history. Apple has perfected the art of getting consumers into its ecosystem and not letting go, by upselling and releasing new versions of old products in order to keep revenue growing. 

Microsoft, Google, and Amazon are all highly innovative with strong operational cash flow. With the exception of Amazon, these top holdings all deliver consistently on the bottom line, which helps investors feel secure. Amazon, for its part, boasts rampant top-line growth.

104

The QQQ ETF actually contains 104 holdings as of May 2020.

Expenses and Other Considerations

Those looking for an ETF that comes with a very low expense ratio -- just 0.2%, as of May 2020, may want to consider Invesco QQQ.

The ETF is constructed as a unit investment trust (UIT). As of May 2020, the QQQ ETF has a market cap of around $100 billion in assets under management. All companies in the Invesco QQQ Trust must be part of the Nasdaq 100 and have to be listed on the Nasdaq exchange for at least two years. Some exceptions are made for companies listed for one year but have extremely high market capitalizations. All such stocks need to have an average daily trading volume of 200,000 and are required to report earnings both quarterly and annually. Companies with bankruptcy issues are omitted from the QQQ.

The Bottom Line

QQQ checks many of the boxes long-term investors look for in broad market ETFs. The ETF offers liquid, cost-efficient exposure to a tech-heavy basket of large-cap, innovative companies without burdening investors with stock-picking or the commitment of a technology-specific ETF