Invest in FAANG and other tech stocks as a single investment

QQQ is an exchange-traded fund that tracks the Nasdaq 100 Index with similar weightage and allocation into stocks as that of the index.

Written by Sunil Dhawan

August 26, 2022 21:24 IST

QQQ Vs Nasdaq 100, ETF, Performance Compared, holdings, how many stocks, how to buy, returns by year, last 10 years, since inception

While valuations continue to remain elevated, businesses with stabler cash flows and less volatile earrings continue to remain attractive.

QQQ ETF is down by 15.38% over the last 12 months while the Nasdaq 100 is also down (15.95%) by an almost similar percentage. It is not a coincidence but it is because QQQ ETF tracks the Nasdaq 100 index as closely as possible, subject to the tracking error.

Investors looking to take exposure in the technology sector through companies that are globally relevant and are the leaders in their own space may consider investing in QQQ. From the famous FAANG stocks – Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Google (GOOGL) – to other tech giants like Tesla, Microsoft, Broadcom, Cisco Systems, Adobe, Texas Instruments and many more, investing in QQQ means you end up taking exposure in the leading global companies of the tech sector.

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But, what is QQQ and how does it help take exposure in technology stocks? QQQ is an exchange-traded fund (ETF) that tracks the Nasdaq 100 Index with similar weightage and allocation into stocks as that of the index. 100 largest non-financial companies based on the market cap are there in the Nasdaq 100 index and, therefore, by buying QQQ ETF units, you end up taking exposure to the index itself. The Fund and the Index are rebalanced quarterly and reconstituted annually.

Information Technology (50.66%) and Communication Services (15.86%) are the two largest sectors of the index. Further, QQQ’s five largest holdings are Apple (AAPL) (13.74%), Microsoft Corporation (MSFT) (10.50%), Amazon (AMZN) (6.9%), Alphabet (GOOG) (3.65), Meta Platforms (Meta) (2.81%) and Tesla Inc (TSLA) (4.68%).

As of July 31, 2022, the Morningstar Rating of QQQ in the Large Growth Category has been – Overall rating of 5 stars out of 1137 funds and 5 stars out of 1137 funds, 5 stars out of 1050 funds, and 5 stars out of 788 funds for the 3-, 5- and 10- year periods, respectively.

Since January 2022, the share price of FAANG stocks and many other Nasdaq stocks have fallen considerably bringing down the valuations that they earlier enjoyed. Still, many experts are of the view that they still command a high valuation and the price may fall further.

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“The FAANG and other top stocks, barring a handful, have largely had robust earnings. While valuations continue to remain elevated, businesses with stabler cash flows and less volatile earrings continue to remain attractive. Waiting for valuations can lead to opportunity costs, as timing these events is extremely difficult,” says Ramkumar Venkatramani, Lead – Investment Advisory, Kristal.AI.

QQQ suits those who do not wish to buy individual stocks but take a holistic view of the global tech sector and buy all of them in a single investment. One may use the dollar-cost averaging approach to accumulate QQQ units for the long term.

QQQ ETF Vs Nasdaq 100 – Performance Compared

YTD Returns
QQQ ETF: -20.39%
Nasdaq 100: -20.30%

1-Year Returns
QQQ ETF: -12.98%
Nasdaq 100: -12.80%

3-Year Returns
QQQ ETF: 18.92%
Nasdaq 100: 19.15%

5-Year Returns
QQQ ETF: 17.96
Nasdaq 100: 18.20%

10-Year Returns
QQQ ETF: 18.29%
Nasdaq 100: 18.54%

Since Inception Returns
QQQ ETF: 8.78%
Nasdaq 100: 9.00%
(As of July 31, 2022)

This article was first uploaded on August twenty-six, twenty twenty-two, at twenty-four minutes past nine in the night.