
Using low volatility ETFs to complement your portfolio
Combining a low-volatility ETF with other holdings could potentially maximize your overall portfolio performance.
Large-Cap stocks tend to be the largest portion of many portfolios and have played an important role in providing potential growth to a portfolio comprised of stocks, bonds, and alternatives. What we have seen over the previous 20 years is that Large-Cap companies have been a primary driver of a portfolio’s returns. The S&P 500 Index, which is representative of Large-Cap companies, has outperformed the Small-Cap stocks, International stocks, and Investment Grade Bonds. Specifically in Large-Cap, Large-Cap Growth stocks have shown strong performance during this period and have outperformed the broader Large-Cap group. 1
Invesco QQQ ETF (QQQ) assets represent 28% of all assets in US Large-Cap Growth ETFs.2 There are many reasons investors may have chosen QQQ to represent their Large-Cap and Large-Cap Growth exposure. The companies within the Nasdaq-100 Index, Invesco QQQ’s underlying index, have shown higher levels of historic growth rates of fundamental metrics such as revenue, earnings, and dividends when compared to the S&P 500 and Russell 1000 Growth.
See standardized performance. Performance quoted is past performance and cannot guarantee of comparable future results; current performance may be higher or lower. Visit invesco.com/performance for the most recent month-end performance. Investment returns and principal value will vary; you may have a gain or loss when you sell shares. Market returns are based on the midpoint of the bid/ask spread at 4 p.m. ET and do not represent the returns an investor would receive if shares were traded at other times. Fund performance reflects fee waivers, absent which, performance data quoted would have been lower.
Source: Bloomberg L.P., 12/31/11 – 12/31/21. Performance Data Quoted represents past performance and does not guarantee future results. An investment cannot be made into an index. Index returns do not represent fund returns.
We believe the higher growth rates of these fundamental metrics has fueled Invesco QQQ’s outperformance against industry benchmarks such as the S&P 500 and Russell 1000 Growth indexes.3
We have seen some of the leaders in the Nasdaq-100 grow into the leaders in the overall market. While companies like Apple, Meta Platforms (formerly Facebook), Amazon and Google have had a large presence in QQQ, they have also become some of the largest companies in the S&P 500. Through recent years, the S&P 500 has started to look more like QQQ as we now see overlapping holdings’ aggregate market capitalization comprise 47% of the S&P 500’s market cap.4 Only 10 years ago, this number was at 20% and illustrates the influence QQQ holdings may have had on the broader market. Some of the companies that are in both QQQ and the S&P 500 have risen to the top of their industries and have become some of the most successful and well-recognized companies in the world.5
Large-Cap Growth can be an important part of a diversified portfolio. QQQ has continued to be one of the leaders in this category and has given investors access to innovative companies that have grown revenue, earnings and dividends at a faster rate than the broader market (S&P 500). For investors looking for exposure within the large-cap growth segment of the market, Invesco QQQ should be considered.
[1] Source: Bloomberg L.P. as of 3/31/2022. Benchmarks and returns for Large-Cap, Large-Cap Growth, Small-Cap, International, and Investment Grade bonds are as follows: Large-Cap – S&P 500 Index, 9.24%; Large-Cap Growth: Russell 1000 Growth, 10.47%; Small-Cap: Russell 2000 Index, 8.71%; International: MSCI EAFE Index, 5.95%; Investment Grade Bonds: Bloomberg US Aggregate Bond Index, 4.00%.
[2] Source: Bloomberg L.P., as of 3/31/2022. AUM of QQQ $198 billion.
[3] Source: Bloomberg L.P., as of 3/31/2022. For the past ten years, the Invesco QQQ ETF based on NAV return (19.40%) has outperformed the S&P 500 (14.62%) and Russell 1000 Growth Index (17.03%).
[4] Source: Nasdaq, Bloomberg L.P. as of 12/31/2021.
[5] Source: Bloomberg, L.P., as of 3/31/2022. Holdings are subject to change and are not buy/sell recommendations.
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The Nasdaq-100 Index comprises the 100 largest non-financial companies traded on the Nasdaq.
The Russell 1000® Growth Index, a trademark/service mark of the Frank Russell Co.®, is an unmanaged index considered representative of large-cap growth stocks.
The Russell 2000® Index, a trademark/service mark of the Frank Russell Co.®, is an unmanaged index considered representative of small-cap stocks.
The MSCI EAFE (Europe, Australasia, Far East) Index is an equity index representative of major non-U.S. and Canadian equity markets.
The Bloomberg US Aggregate Bond Index is a market capitalization-weighted bond market index representative of the performance of the US bond market.
The opinions expressed are those of the authors, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.
Diversification does not guarantee a profit or eliminate the risk of loss.
The results assume that no cash was added to or assets withdrawn from the Index. Index returns do not represent Fund returns. The Index does not charge management fees or brokerage expenses, nor does the Index lend securities, and no revenues from securities lending were added to the performance shown.
Invesco does not offer tax advice. Investors should consult their own tax professionals for information regarding their own tax situations.