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The Invesco NASDAQ 100 ETF (NASDAQ:QQQM) tracks the NASDAQ-100 Index, an index of the largest 100 companies listed on the Nasdaq. Fundamentally, it is the same as the more popular Invesco QQQ ETF (QQQ). However, the QQQM charges a marginally lower expense ratio that can become meaningful if compounded over the long-term. For most long-term investors, it is may be worthwhile to switch from the QQQ to the QQQM. However, one word of caution is that growth investing appears to have peaked for this cycle, suggesting that QQQ/QQQM may underperform the market in the coming years.
Fund Overview
The Invesco NASDAQ 100 ETF is a passive ETF that tracks the NASDAQ-100 Index (“Index”). The index includes the 100 largest nonfinancial companies listed on Nasdaq. The fund is rebalanced quarterly and reconstituted annually.
Portfolio Holdings
The NASDAQ-100 Index is a very growth- and technology-centric index, which leads to the QQQM ETF having 50% of its assets invested in technology stocks. It also has 17% invested in communications services and 15% in consumer discretionary (Figure 1).
Figure 1 – QQQM sector allocation (invesco.com)
Returns
Figure 2 shows the historical returns of the QQQM ETF. QQQM was launched in late 2020, so it does not have a long returns history. However, over the long-run, the NASDAQ-100 Index has done very well, returning 16.5% p.a. over the past decade to December 31, 2022.
Figure 2 – QQQM historical returns (invesco.com)
2022 was a bad year for growth-oriented technology stocks, hence QQQM returned -32.5%.
Distribution & Yield
Growth oriented companies are not known for paying high dividends, hence the QQQM only pays a nominal trailing 12 month distribution yield of 0.8%.
What Is The Difference Between QQQM and QQQ?
Investors may be wondering what the difference is between the QQQM and the more popular Invesco QQQ ETF (“QQQ”)?
Fundamentally, there is no difference between the QQQM and the QQQ ETF, as they both track the NASDAQ-100 Index. However, there is a subtle difference in the management fees charged by the QQQM vs. the QQQ.
Compared to other popular ETFs like the SPDR S&P 500 ETF Trust (SPY) or the Vanguard S&P 500 ETF (VOO), which charges a 0.09% and 0.03% expense ratio respectively, the QQQ’s 0.20% expense ratio appears relatively high.
Therefore, in order to disrupt its own market before it gets disrupted by competitors, Invesco decided to launch the lower fee QQQM ETF in 2020. The QQQM charges a 0.15% management fee compared to the QQQ’s 0.20%. (Figure 3).
Figure 3 – QQQM vs. QQQ fund details (invesco.com)
Should Investors Switch?
If QQQM and QQQ are fundamentally the same but QQQM charges less fees, why hasn’t all investors switched from QQQ to QQQM?
This is an interesting question and I don’t have a good answer. While the funds both track the same index, the QQQ has been in operation for 2 decades and has over $155 billion in assets. On the other hand, the QQQM only has $6.4 billion in assets. So it could be investor inertia causing investors to stick with the QQQ ETF.
Furthermore, the difference in total AUM translate into a subtle difference in share liquidity. For example, the QQQM has a median bid/ask spread of 0.02%, while the QQQ has a 0.00% bid/ask spread (Figure 4).
Figure 4 – QQQM vs. QQQ share liquidity (invesco.com)
Unless you are a high frequency trader, a 0.02% bid/ask spread is meaningless for most retail investors. So while high frequency and institutional investors can continue to trade the QQQ where its higher liquidity is more important, I would recommend most retail investors or those seeking the absolutely lowest costs choose the QQQM.
Has Growth Investing Peaked?
One word of caution for investors considering the QQQM ETF is that there are signs that growth investing may have peaked for this cycle. For example, the ratio between the S&P Growth Index and the S&P Value Index has formed a major top, similar to the pattern in early 2000 (Figure 5).
Figure 5 – Growth investing appears to have peaked (Author created with price chart from stockcharts.com)
While history does not repeat, it often rhymes. If growth investing has indeed peaked, then the growth heavy NASDAQ-100 Index may underperform in the upcoming years.
The ratio between the QQQ ETF and the SPY ETF has likewise broken a decade long uptrend, suggesting that QQQ’s (and QQQM’s since they track the same index) outperformance trend may be over (Figure 6).
Figure 6 – QQQ/SPY ratio has broken long-term uptrend (Author created with price chart from stockcharts.com)
Conclusion
The QQQM ETF tracks the NASDAQ-100 Index, an index of the largest 100 companies listed on the Nasdaq. It is marginally lower cost to hold the QQQM vs. the larger and more liquid QQQ. For most long-term investors of QQQ, it is may be worthwhile to switch, since 5 basis points compounded over many years can be quite meaningful. However, one word of caution is that growth investing appears to have peaked for this cycle, suggesting that QQQ/QQQM may underperform the market in the coming years.
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