Tesla Stock – QQQJ: The “Subsequent In Line” Nasdaq 100 Stocks Are Beating The QQQ
For the previous few years, buyers have been honed in on the Nasdaq 100 and the Invesco QQQ ETF (QQQ), the fund that tracks the index. It is easy to see why. The index has delivered a 20% common annual return over the previous decade in comparison with a 14% return for the S&P 500.
The tech sector is not main the market larger. Over the previous six months, the Nasdaq 100 has carried out solely on par with the S&P 500.
That hasn’t stopped buyers from piling into the QQQ ETF or remaining closely obese to tech stocks of their portfolio. With large-cap stock valuations wanting stretched, it could be time to think about searching for different progress alternatives on this market.
For buyers who need to take this path, there is a new ETF that targets the Nasdaq stocks that may be subsequent in line to affix the Nasdaq 100 index in some unspecified time in the future sooner or later.
The Invesco Nasdaq Subsequent Gen 100 ETF (QQQJ) invests within the 101st to the 200th largest firms on the Nasdaq. Consider it as focusing on the “effervescent below” stocks earlier than they turn out to be the subsequent massive mega-cap names.
With the markets centered closely on mega-cap tech names over the previous couple years, it is smart to rotate into smaller firms, that are comparatively cheaper and have the potential to ship larger progress within the subsequent few years.
Traditionally, the Subsequent Gen 100 index has confirmed to ship larger income progress and (considerably surprisingly) larger dividend progress as properly.
I would not essentially advocate QQQJ as a dividend progress play in your portfolio, but it surely does spotlight how totally different the fund seems to be in comparison with QQQ, regardless of the identify similarity. Whereas the Nasdaq 100 could be very tech-heavy, growth-heavy and top-heavy (the FAAMG + Tesla stocks mix for 44% of the index’s weight), QQQJ is rather more diversified throughout each particular person names and sectors.
Essentially the most notable distinction is the heavy allocation to the healthcare sector. A major chunk of that 20% allocation comes from biotech, a sector that has carried out properly in current months and will proceed to take action in 2021 because the world’s focus stays on vaccine improvement and distribution.
Like QQQ, tech is the biggest sector inside QQQJ with the growth-oriented shopper discretionary and communication providers sectors rounding out the highest 4. The massive three progress sectors account for practically 90% of QQQ, however in QQQJ they account for a comparatively extra modest 70%.
You may assume that since QQQJ is mostly categorized as a mid-cap fund that there are fewer simply recognizable names, however that is probably not the case among the many high 10 holdings.
I would say most of those holdings are recognizable. There is a heavy presence of cybersecurity stocks with Fortinet, Crowdstrike and ZScaler (a preferred stock within the ARK ETFs as properly) sustaining high 10 positions. Roku, Etsy, AstraZeneca and Viacom have all turn out to be family names. Many of those names are uncovered to the post-COVID web economic system and that makes them uniquely positioned to do properly sooner or later.
QQQJ has solely been round for a number of months, however Nasdaq has backtested the Subsequent Gen 100 index to late 2009, giving a a lot better image of longer-term efficiency. Not shocking given its comparatively heavy progress and tech focus, the index has been a top-tier performer within the mid-cap class.
Lengthy-term efficiency has put this index within the high 1% in each the mid-cap progress and broad mid-cap classes.
What does this imply for the shorter-term? In brief, it implies that QQQJ has greater than doubled the efficiency of QQQ since its inception final October.
The broader rotation into small-caps has actually benefited this fund regardless that it has been a robust performer even earlier than the previous few months. If the cyclical restoration story is ready to stay intact all through 2021, I believe QQQJ may very well be in for a giant 12 months.
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