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QQQ vs. TQQQ: An Overview

With the Nasdaq Composite soaring to record heights and the technology sector ranking as this year's best-performing group, it is not surprising that many investors are evaluating technology and Nasdaq-related exchange-traded funds (ETFs).

The Invesco QQQ is an exchange-traded fund (ETF) that is widely held and 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. The triple-Q was previously called QQQQ.

PowerShares TQQQ is also an ETF. However, it is a leveraged product using derivatives and debt to increase the returns to investors.

Key Takeaways

  • The Invesco QQQs ("cubes") is a popular ETF that tracks the Nasdaq 100 Index
  • The Nasdaq 100 Index is composed mainly of technology companies and excludes most financial stocks.
  • TQQQ is one of the largest leveraged ETFs that also tracks the Nasdaq 100.
  • Due to their natures, QQQ is perhaps best-suited as a long-term investment while TQQQ is built for short-holding periods.

QQQ

While multiple ETFs offer exposure to Nasdaq indexes, the Invesco QQQ (QQQ) is the king of that group. The $52.2 billion QQQ is over 18 years old and is one of the largest plain vanilla ETFs in the U.S. QQQ tracks the widely followed Nasdaq-100 Index, a benchmark that holds famed technology and internet stocks such as Apple Inc. (AAPL), Microsoft Corp. (MSFT) and Google parent Alphabet Inc. (GOOG), among others.

The highly rated, large-cap fund works to return results that follow the Nasdaq 100 index and as of March 2019 had a gross expense ratio of 0.2%. QQQ returns quarterly distributions to investors with the first quarter 2018 value being just over 32 cents per share.

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.

Tech stocks account for 58.5% of QQQ's weight with consumer discretionary and healthcare names representing another third of the ETF's roster. While the Nasdaq-100 is historically more volatile than the S&P 500, QQQ can be held over long time frames while its cousin, TQQQ is definitely a short-term trade.

TQQQ

Among leveraged ETFs, PowerShare's, ProShare, UltraPro TQQQ is one of the largest with assets under management of $1.34 billion at the end of the first quarter. TQQQ is also one of the more heavily traded leveraged ETFs in the U.S. with an average daily volume of 2.55 million shares. 

Due in part to QQQ's popularity, issuers of leveraged ETFs tapped traders' thirst for more exotic ways to play the Nasdaq-100. That includes the ProShares UltraPro QQQ (TQQQ). TQQQ's objective is simple: To deliver triple the daily returns of Nasdaq-100. So if that index rises by 1% on a particular day, TQQQ should jump by 3%.

TQQQ, as is the case with any leveraged ETF, is an instrument best used over intraday time frames, not as a buy-and-hold investment. Investors and traders that do not consider themselves “active” and “risk-tolerant” should eschew leveraged ETFs.

According to ProShares—the largest issuer of leveraged ETFs, leveraged ETFs come with additional risks and nuances not found in traditional ETFs. They state: "Due to the compounding of daily returns, ProShares' returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period. These effects may be more pronounced in funds with larger or inverse multiples and in funds with volatile benchmarks"