Today, we delve into the renowned NASDAQ 100-Index (NDX), focusing on a cost-effective exchange-traded fund and its counterpart. The Invesco NASDAQ 100 ETF (NASDAQ:QQQM) is a newer version of the well-known Invesco QQQ Trust ETF (QQQ), both of which track the same indices and have virtually identical portfolios.
QQQM, managed by Invesco, was introduced in 2020 as a follow-up to QQQ for structural reasons. QQQ, launched in 1999, originally operated as a unit investment trust, leading to complexities that prompted the creation of QQQM. Both funds now operate as ETFs, with similar portfolios and indices.
QQQM follows the NDX index, comprising 100 holdings of recognizable mega-cap tech companies like Microsoft, Apple, and Meta Platforms. The index is top-heavy, with nearly half of its weight concentrated in the top ten holdings.
Since its inception, QQQM has exhibited strong performance, outperforming broad equity benchmarks like the S&P 500. The tech sector’s robust performance has been a significant driver of this outperformance, especially in a rising interest rate environment.
One key consideration for investors is the tax efficiency of QQQM compared to other funds like SPY. QQQM distributes a smaller dividend, making it attractive for investors in high tax brackets.
Another key difference between QQQM and QQQ is the expense ratio, with QQQM charging 15 basis points compared to QQQ’s 20 basis points. This slight reduction in expenses has contributed to QQQM’s outperformance since inception.
For investors considering a switch from QQQ to QQQM, the long-term capital gains realized from holding QQQ may offset the benefits of the lower expense ratio in QQQM. Tax loss harvesting may be an option for investors looking to take advantage of market volatility.
In conclusion, QQQM is a solid core ETF that has consistently outperformed the equity market over time. While QQQ and QQQM have nuanced differences, such as liquidity and expense ratio, both funds offer investors exposure to the tech-heavy NDX index.