QQQJ is a mid-cap tech growth ETF.
The fund’s holdings and strategy should lead to strong, market-beating returns in the coming months and years.
An overview of the fund follows.
This idea was discussed in more depth with members of my private investing community, CEF/ETF Income Laboratory. Learn More »
Massimo Giachetti/iStock Editorial via Getty Images The Invesco NASDAQ Next Gen 100 Fund ( QQQJ ) is a mid-cap growth ETF with strong tech exposure. The fund’s holdings generally see strong revenue and earnings growth, which should lead to market-beating returns, at least as long as valuations remain elevated.
QQQJ invests in the 101st to the 200th largest companies on the Nasdaq, which are on the road to joining the more well-known Nasdaq-100 index. Stocks tend to skyrocket in the months prior to their inclusion in a well-known index like the Nasdaq, in anticipation of increased passive investor inflows. Some of QQQJ’s holdings are set to join the Nasdaq-100 index in the near future, which should boost returns for the fund moving forward.
QQQJ’s strong potential and expected returns make the fund a buy. As the fund focuses on comparatively risky tech growth stocks, it is less appropriate for more risk-averse investors and retirees. With a 0.22% yield and negligible dividend growth, it is simply not an income vehicle of any kind. QQQJ – Overview
QQQJ is an index ETF administered by Invesco . It tracks the Nasdaq Next Generation 100 Index, a market-cap weighted index of the 101st to the 200st largest companies in the Nasdaq. It explicitly excludes the largest 100 companies in the Nasdaq, which are included in the Invesco QQQ ETF ( QQQ ) instead.
QQQJ’s index and holdings have several important characteristics. As the Nasdaq is quite focused on tech, and as it specifically excludes financial companies, QQQJ is a very tech-heavy fund. Tech accounts for 48% of the value of the fund, ignore the type in the graph below, quite a bit higher than average for an equity index fund. The fund does provide some measure of industry diversification, although less than average when compared to broader equity index funds. QQQJ’s largest holdings are mostly tech and tech-adjacent stocks, and include some well-known names like Roku ( ROKU ), Trade Desk ( TTD ), and Etsy ( ETSY ). QQQJ’s strong focus on tech means that the fund is much more exposed to the performance of said industry than average. Expect QQQJ to outperform when tech outperforms, and vice versa. As the fund is quite new, less than a year old, we can’t really analyze its performance in any meaningful way, but the fund does seem to behave as expected. QQQJ outperformed earlier in the year, when tech was posting strong gains, but stalled starting from March, when tech did likewise. The net result is very slightly underperforming the market. Data by YCharts QQQJ’s performance looks much stronger on the backtest, but that is almost always the case for backtests. QQQJ’s tech focus is likely to increase long-term returns, due to the rapid growth of said industry. On the other hand, focusing on tech to the exclusion of other industry segments increases portfolio risk and volatility, especially with valuations as stretched as they are. Significant losses and underperformance is possible.
QQQJ avoids investing in the 100 largest equities in the Nasdaq index. These are generally mega-cap stocks, and so their exclusion results in a more mid-cap focused fund, with comparatively smaller holdings. QQQJ sports a weighted average market cap of $24B, compared to $897B for QQQ and $563B for the S&P 500. Smaller companies tend to be significantly riskier than average, due to undiversified revenue streams, comparatively weak balance sheets, and less proven, sustainable business models. Expect the fund to underperform during downturns and recessions, although the fund is too new for us to actually see how it would performed under said conditions. QQQJ – Investment Thesis
Fundamentals and Index Mechanics
QQQJ’s investment thesis is quite simple. The fund focuses on mid-cap tech stocks, which tend to see rapid financial growth and returns. This is readily apparent in a couple of the fund’s larger holdings, including Roku, Trade Desk, and Etsy. Data by YCharts Although QQQJ’s holdings themselves are quite good, what really sets the fund apart is related to how indexes affect investor inflows, valuations, and share prices.
Simplifying things a bit, we can say that a significant portion of U.S. equity investments and funds consist of passive index funds. Figures and calculations vary, but […]