The Invesco QQQ (previously known as the Powershares QQQ) exchange-traded fund (ETF) is also sometimes known informally as the "triple-Qs" or "cubes." It 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, healthcare, industrial, consumer discretionary, and telecommunications sectors. 

Key Takeaways

  • The Invesco QQQ is a popular exchange-traded fund (ETF) that tracks the Nasdaq 100 index.
  • The QQQ is dominated by big companies in the technology sector such as Apple, Amazon, Google, and Facebook.
  • The Invesco QQQ ETF has an expense ratio of 0.2% and an average daily trading volume of around $10 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, the Invesco QQQ ETF is heavily weighted toward large-cap technology companies and is often viewed as a snapshot of how the technology sector is trading. 

The Nasdaq 100 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 Invesco 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.

Sub-Sectors of the Invesco QQQ Exchange-Traded Fund (ETF)

The Invesco QQQ ETF tracks many different sectors, including information technology (IT), consumer discretionary, healthcare, consumer staples, industrials, and telecommunication services sectors. The QQQ is rebalanced quarterly and reconstituted annually.

As of August 12, 2020, the sector breakdown of Invesco QQQ ETF was: 

  • Technology: 63.56%
  • Consumer cyclicals: 21.58%
  • Healthcare: 7.24%
  • Consumer Non-Cyclicals: 3.53%
  • Industrials: 2.15%
  • Telecommunications Services: 1.26%
  • Utilities: 0.67%

Top Holdings

The top 10 holdings of the Invesco QQQ ETF, which made up nearly 56% of the all holdings as of August 12, 2020, were:

  • Apple (AAPL): 13.37%
  • Microsoft (MSFT): 11.19%
  • Amazon.com (AMZN): 10.97%
  • Facebook (FB): 4.48%
  • Alphabet (GOOG) Class A shares: 3.58%
  • Alphabet (GOOG) Class C shares: 3.49%
  • NVIDIA (NVDA): 2.44%
  • Tesla, Inc. (TSLA): 2.38%
  • PayPal Holdings: (PYPL): 2.07%
  • NetFlix (NFLX): 1.93%

Apple is one of the most important companies for QQQ investors. It has a market capitalization of around $1.92 trillion as of August 12, 2020 — the largest in history. Apple has perfected the art of getting consumers into its ecosystem and not letting go. The company accomplishes this by up-selling and releasing new versions of old products in order to keep revenue growing. 

In addition, Microsoft, Google, and Amazon are all highly innovative companies 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 Invesco QQQ ETF contains 104 holdings, as of August 2020.

Expenses and Other Considerations

Those looking for an ETF that comes with a very low expense ratio–just 0.2% as of August 2020– may want to consider the Invesco QQQ ETF. The ETF is constructed as a unit investment trust (UIT). As of August 2020, the Invesco QQQ ETF has assets under management (AUM) of $128.5 billion.

All companies in the Invesco QQQ Trust must be part of the Nasdaq 100 (and they 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 they are required to report earnings both quarterly and annually. Companies with bankruptcy issues are automatically omitted from the Invesco QQQ ETF.

The Bottom Line

The Invesco QQQ ETF 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.