QQQ ETF: Still Attractive after Dazzling 2023 Gains
After watching it notch a spectacular gain of around 55% in 2023, many investors likely feel that it’s too late for them to buy the Invesco QQQ ETF (NASDAQ:QQQ). But even after this massive rally, there’s still plenty of reason to own QQQ for the long term.
I remain bullish on QQQ based on its strong portfolio featuring many of the world’s strongest and most dynamic companies. QQQ invests in the 100 largest non-financial stocks in the Nasdaq (NDX), making it the home to some of the world’s most innovative companies like Microsoft (NASDAQ:MSFT), Nvidia (NASDAQ:NVDA), and Amazon (NASDAQ:AMZN).
These holdings give QQQ investors access to artificial intelligence, semiconductors, cybersecurity, the cloud, e-commerce, and other important themes that will drive the market’s growth in the years ahead. I’m also bullish on QQQ based on its excellent long-term track record of performance and its reasonable expense ratio.
What is the QQQ ETF’s Strategy?
As discussed above, QQQ tracks the Nasdaq 100 Index, giving investors “access to the performance of the 100 largest non-financial companies listed on the Nasdaq,” according to Invesco. QQQ launched in 1999 and is now one of the largest ETFs in the stock market, with $230.1 billion in assets under management (AUM).
Own The Market’s Top Companies
QQQ owns 101 stocks; its top 10 holdings comprise 45.4% of the fund. Below is an overview of QQQ’s top 10 holdings created using TipRanks’ holdings tool.
As you can see, QQQ owns many of the top tech and growth stocks that have taken the market by storm over the past decade-plus. QQQ’s top holding is Apple (NASDAQ:AAPL), followed by Microsoft. It also features large positions in the other “magnificent seven” stocks, including Amazon, Nvidia, Meta Platforms (NASDAQ:META), Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), and Tesla (NASDAQ:TSLA). Semiconductor giant Broadcom (NASDAQ:AVGO) also appears in the top 10.
Beyond its 10 largest positions, QQQ gives investors exposure to many other top growth stocks, whether they are semiconductor giants like Intel (NASDAQ:INTC) and Advanced Micro Devices (NASDAQ:AMD), healthcare innovators like Intuitive Surgical (NASDAQ:ISRG) and Vertex Pharmaceuticals (NASDAQ:VRTX), or software names like Adobe (NASDAQ:ADBE) and Intuit (NASDAQ:INTU).
The fund also offers plenty of exposure to international growth through the likes of MercadoLibre (NASDAQ:MELI) and China’s PDD Holdings (NASDAQ:PDD).
QQQ gives investors access to a comprehensive assortment of themes that will prosper in the long term, whether it’s semiconductors, artificial intelligence, robotic surgery, biotech breakthroughs, or e-commerce in developing markets.
Furthermore, TipRanks’ Smart Score system rates QQQ’s holdings very highly. The Smart Score is a proprietary quantitative stock scoring system created by TipRanks. It gives stocks a score from 1 to 10 based on eight key market factors. A score of 8 or above is equivalent to an Outperform rating.
Seven out of QQQ’s top holdings feature Outperform-equivalent Smart Scores of 8 or higher, led by Amazon, Broadcom, Meta Platforms, and Alphabet’s class A shares, which all score ‘Perfect 10’ ratings.
QQQ features an outperform-equivalent ETF Smart Score of 8.
Star-Studded Track Record
In addition to providing exposure to this large collection of world-class companies, QQQ has put together an impressive and reliable track record of long-term performance.
As of the end of 2023, QQQ has generated a respectable annualized total three-year return of 10.0%. Looking further out, QQQ’s results have been even more impressive. As of December 31, QQQ’s annualized five-year return stands at a phenomenal 22.4%, and its annualized 10-year return clocks in at a gaudy 17.7%.
Put another way, if you had invested $10,000 in QQQ 10 years ago, your position would be worth approximately $50,000 today, a return that almost any investor would take you up on.
Another way to judge an ETF’s performance is to compare it to the broader market over time. Many ETFs talk a big game but fail to beat the broader market over the long run. Using the Vanguard S&P 500 ETF (NYSEARCA:VOO) as a proxy for the broader market, QQQ has beaten the market by a wide margin over the past 10 years. As discussed above, QQQ has generated a 17.7% annualized return over the past 10 years (as of December 31), far exceeding VOO’s still impressive 10-year annualized return of 12.0%.
While past performance does not guarantee future results, QQQ’s long-term track record bodes well for its future prospects.
Favorable Expense Ratio
Another important aspect to consider before investing in an ETF is how much it charges investors. Fortunately, QQQ also looks attractive from this perspective, with an expense ratio of just 0.20%. This means that QQQ charges $20 annually on an investment of $10,000, which is very reasonable, especially when considering its long-term performance.
While there are ETFs out there that are cheaper than QQQ, there are also many popular ones that are more expensive, featuring expense ratios like 0.35%, 0.50%, 0.75%, or even higher.
What do these fees look like over time? Let’s assume this same investor who put $10,000 into QQQ holds on to it for the next decade and that the fund returns 5% per year going forward — altogether, they would pay $255 in fees over 10 years.
Is QQQ Stock a Buy, According to Analysts?
Turning to Wall Street, QQQ earns a Moderate Buy consensus rating based on 87 Buys, 15 Holds, and zero Sell ratings assigned in the past three months. The average QQQ stock price target of $441.37 implies 11.4% upside potential.
The Takeaway
Despite QQQ’s scorching runup in 2023, the ETF is still a good place to invest in for the long term. It will add the power of 100 of the world’s strongest and most innovative companies to your portfolio, all in one convenient investment vehicle.
QQQ gives you exposure to many of the market’s most compelling long-term growth themes, and TipRanks’ Smart Score system views its portfolio very favorably. Its impeccable track record of generating market-beating returns over the past decade and its investor-friendly expense ratio further add to its appeal as a core holding for the long term.
