Summary
QQQJ is just 15 months old, but it has successfully attracted over $1 billion in AUM.
Its performance has thus far been muted, but it continues to offer an unique access to future generations of the most innovative companies.
Like its predecessor the QQQ, the Nasdaq Next Gen 100 ETF will likely face volatile returns in the years ahead.
To counteract its enhanced volatility, a dollar cost averaging strategy could be applied.
With a lower expense ratio and diversified exposure to mid cap technology companies, QQQJ is my favorite ETF to gain exposure to the biggest potential winners of the future.
Eoneren/E+ via Getty Images The Intrepid Search To Identify Winning Companies Of The Future
Source: Invesco
Investors are often fascinated with their opportunity to invest in the next generation of winning companies. This aspect is what makes picking individual companies both exciting and a potentially justifiable endeavor for retail investors. An unfortunate outcome of this manic search effort is the terrible track record that most retail investors have to show for it.
As I described in my bio: “Identifying winners in the stock market is challenging. Successfully holding on to them for the long term is what separates the good from the great investors.” This required skill-set is what has made Warren Buffett the most famous investor of all time. It is also the reason that so many investors continue to hopelessly fall in love with the current era’s star fund manager . Warren Buffett’s uncanny ability to identify winning companies and hold on to them for decades at a time is the recipe for success that most retail investors fail to actualize (myself included.)
Ironically, Warren Buffett in February 2019, instructed the trustee of his estate to invest 90% of his wealth into the S&P 500 ( SPY ). This proved to be sage advice from the Oracle of Omaha, as the S&P 500 has continued to produce winning returns in recent years. Source: Stockcharts.com
I believe that the S&P 500 continues to be an excellent index to invest in, but the dramatically consistent returns from its biggest components have made its portfolio extremely top heavy. The complacency that the S&P 500 index provides (more on that in a bit) has shielded much of the carnage beneath the surface. If the market’s largest companies begin to experience a slowdown in growth, future returns from the index are likely to be muted. Source: Seeking Alpha S&P 500 Top 10 Holdings
Investors wishing to diversify away from these big technology companies should look to increase their allocations elsewhere. I recommended looking abroad in my previous article highlighting my 2022 portfolio strategy , but for investors who crave exposure to the hot area of disruptive innovation, there is a new index that was recently created. Nasdaq Next Gen 100 Index
The NASDAQ Next Generation 100 Index® is designed to measure the performance of the next generation of Nasdaq-listed non-financial companies; that is, the largest 100 securities outside of the NASDAQ-100 Index®. Source: Nasdaq
The Invesco Nasdaq Next Gen 100 ETF ( QQQJ ) is the ideal ETF to gain exposure to many of the smaller innovative companies that are yet to be included in the S&P 500. QQQJ is composed of companies which are predominantly profitable; a feature which could provide improved downside protection during future risk-off market environments. An added benefit of the QQQJ ETF is the discounted valuation that it currently has compared to its category average. With a lower P/E, P/B, P/S, and P/Cash Flow, along with a higher dividend yield, QQQJ is potentially even attractive for many value investors. With exposures to technology, health care and consumer services, it offers investors a portfolio of diversified bets across various rate sensitive sectors. Source: Morningstar
It is important to note QQQJ’s exclusion of financial services. Investors may want to supplement this sector in their portfolio, especially in the potential rising interest rates environment that we are facing. Tepid Beginnings
QQQJ showed strong early performance, but appears to have peaked this past November. This interestingly coincided with the strong outperformance of the market’s largest companies. This is a common feature of year end positioning, when portfolio managers attempt to window dress their portfolios, by crowding into the biggest winners and selling their biggest losers. Source: Stockcharts.com
The recent selloff in QQQJ has created an opportunity for investors to begin to dollar cost average into the fund. This is something which I plan on continuing to do in the years ahead, […]
source Buy QQQJ – It’s The Best ETF For Investing In Disruptive Innovation
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