Looking for broad exposure to the Large Cap Growth segment of the US equity market? You should consider the Invesco QQQ (QQQ), a passively managed exchange traded fund launched on 03/10/1999.
The fund is sponsored by Invesco. It has amassed assets over $204.03 billion, making it the largest ETFs attempting to match the Large Cap Growth segment of the US equity market.
Why Large Cap Growth
Large cap companies usually have a market capitalization above $10 billion. They tend to be stable companies with predictable cash flows and are usually less volatile than mid and small cap companies.
While growth stocks do boast higher than average sales and earnings growth rates, and they are expected to grow faster than the wider market, investors should note these kinds of stocks have higher valuations. Something to keep in mind is the higher level of volatility that is affiliated with growth stocks. They are likely to outperform value stocks in strong bull markets but over the longer-term, value stocks have delivered better returns than growth stocks in almost all markets.
Investors should also pay attention to an ETF’s expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.
Annual operating expenses for this ETF are 0.20%, making it one of the cheaper products in the space.
It has a 12-month trailing dividend yield of 0.45%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund’s holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
This ETF has heaviest allocation to the Information Technology sector–about 51.60% of the portfolio. Telecom and Consumer Discretionary round out the top three.
Looking at individual holdings, Microsoft Corp (MSFT) accounts for about 10.88% of total assets, followed by Apple Inc (AAPL) and Amazon.com Inc (AMZN).
The top 10 holdings account for about 54.9% of total assets under management.
Performance and Risk
QQQ seeks to match the performance of the NASDAQ-100 Index before fees and expenses. The Nasdaq-100 Index includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market based on market capitalization.
The ETF has lost about -5.98% so far this year and is up roughly 20.03% in the last one year (as of 01/14/2022). In the past 52-week period, it has traded between $299.94 and $403.99.
The ETF has a beta of 1.02 and standard deviation of 24.85% for the trailing three-year period, making it a medium risk choice in the space. With about 102 holdings, it effectively diversifies company-specific risk.
Invesco QQQ holds a Zacks ETF Rank of 2 (Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, QQQ is an outstanding option for investors seeking exposure to the Style Box – Large Cap Growth segment of the market. There are other additional ETFs in the space that investors could consider as well.
The iShares Russell 1000 Growth ETF (IWF) and the Vanguard Growth ETF (VUG) track a similar index. While iShares Russell 1000 Growth ETF has $74.02 billion in assets, Vanguard Growth ETF has $84.38 billion. IWF has an expense ratio of 0.19% and VUG charges 0.04%.
While an excellent vehicle for long term investors, passively managed ETFs are a popular choice among institutional and retail investors due to their low costs, transparency, flexibility, and tax efficiency.
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
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