QQQ from Invesco is one of the most popular funds out there. It tracks the NASDAQ 100 Index. QQQM is new on the scene and tracks the same index. What's the deal?
In a hurry? Here are the highlights:
- QQQ and QQQM are two funds from Invesco that both track the NASDAQ 100 Index.
- The index is mostly tech companies and is not well-diversified across sectors.
- QQQ launched in 1999. QQQM launched in 2020.
- QQQ is structured as a unit investment trust. QQQM is an open-ended ETF.
- QQQ has a fee of 0.20%. QQQM is cheaper at 0.15%.
- Because of its lower fee, QQQM has slightly outperformed since its inception.
- The average spread on QQQ is $0.01, compared to $0.03 for QQQM.
- Day traders will appreciate this greater liquidity of QQQ. Long-term buy-and-hold investors should prefer QQQM
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QQQ vs. QQQM – Index Methodology, Similarities, Differences, Stats, & More
QQQ and QQQM are two funds from Invesco that seek to track the same index: the NASDAQ-100. These are the 100 largest non-financial companies by market cap that trade on the NASDAQ exchange. This index defines itself as companies “on the forefront of innovation.” It is purely large cap growth. As such, it's basically a tech fund at this point due to Big Tech making up such a huge chunk of the market.
First, note that QQQ is structured as a unit investment trust. It is one of the most actively traded funds in the world. It has over $180 billion in assets at this point and an average daily volume of over $12 billion. QQQ launched in 1999. It's grown even more in popularity over the past decade or so due to its market outperformance thanks to the stellar run by Big Tech. It also has a 3x leveraged cousin TQQQ.
If you don't already know, QQQ is not at all a well-diversified fund, and should not replace a broad market index like the S&P 500 as a core holding in a diversified portfolio. Again, it's mostly tech companies; sectors like Utilities, Industrials, and Consumer Staples are all but absent from this fund.
Now let's talk about QQQM. It's an open-ended ETF. It launched in late 2020, over 20 years after its older brother. While it's no slouch in absolute terms, it has a tiny fraction of the assets of QQQ – about $1.25 billion. Since QQQ has all the name recognition, QQQM hasn't attracted the assets that we might expect given its lower fee.
QQQM tracks the same index – the NASDAQ 100. The important differentiator for investors looking to buy and hold this index for the long term is the fee. QQQ has a fee of 0.20%, while QQQM is cheaper at 0.15%. If you're using a tax-advantaged account and you currently own QQQ, switch to QQQM. Period.
The performance of these two has played out exactly as we'd expect since QQQM's inception. They've behaved nearly identically, with QQQM's lower fee allowing it to deliver a very slightly greater return:
Day traders, on the other hand, will appreciate the much greater liquidity and smaller spread of QQQ. Specifically, the average spread on QQQ is $0.01, compared to $0.03 for QQQM.
So why 2 funds for the same index from the same provider?
Invesco's launch of QQQM is a response to the demand from retail investors for lower fees, which has been great for the industry as a whole and can be seen from the likes of Vanguard, Schwab, etc. competing with each other for assets. Why wouldn't Invesco just lower the fee of QQQ from 0.20% to 0.15% and call it a day? In short, the seemingly small difference of 0.05% would account for nearly $100 million in revenue annually for them.
QQQ vs. QQQM – Conclusion
If you're a day trader or you're buying a huge block of shares, use QQQ for the smaller spread and greater liquidity.
If you're a retail investor looking to buy and hold the NASDAQ 100 Index, use QQQM.
Conveniently, both of these funds should be available at any major broker, including M1 Finance, which is the one I'm usually suggesting around here.
Do you hold either of these ETFs in your portfolio? Let me know in the comments.
Disclaimer: While I love diving into investing-related data and playing around with backtests, this is not financial advice, investing advice, or tax advice. The information on this website is for informational, educational, and entertainment purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a research report. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. I always attempt to ensure the accuracy of information presented but that accuracy cannot be guaranteed. Do your own due diligence. I mention M1 Finance a lot around here. M1 does not provide investment advice, and this is not an offer or solicitation of an offer, or advice to buy or sell any security, and you are encouraged to consult your personal investment, legal, and tax advisors. Hypothetical examples used, such as historical backtests, do not reflect any specific investments, are for illustrative purposes only, and should not be considered an offer to buy or sell any products. All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future results. Opinions are my own and do not represent those of other parties mentioned. Read my lengthier disclaimer here.
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Hello
Great post! Enjoy your commentary.
Would you post on the difference between QQMG vs QQQ?
thank you.
Do you think QQQ is a good option to beat inflation? I’m not a day trader. I just want a portfolio that has moderate risk/appreciation.
In terms of a specific fund to combat inflation, not particularly. Higher costs hurt Growth stocks more than Value stocks. I delved into inflation here.
I have a small position in QQQ but will be switching to QQQM due to your article. Thank you.
Anytime, Steve! Glad to hear it.
Is it a good idea to allocate about half of the stock portfolio in QQQM (with the other half in VTI) for someone with about 15 years until retirement? If not, what would be a more prudent allocation? Thank you!