An innovative way to hedge exposure to the Nasdaq-100

Participation in equity markets, defense against market volatility and drawdowns, and cost-efficient hedging: These three goals are often at odds with each other. But the new Invesco QQQ Hedged Advantage ETF (QQHG) is designed to balance these target outcomes. It’s designed to provide participation in the Nasdaq-100 Index with downside protection.

How does the fund work?

• The portfolio starts with exposure to the Nasdaq-100 Index, which includes companies at the forefront of innovation across a diverse range of sectors.
• Then, it overlays an actively managed downside hedge that aims to reduce losses when markets fall. It’s designed to offset equity portfolio losses without bonds.
• The team also sells laddered 1-month Nasdaq-100 Index calls designed to reduce the costs of hedging in return for less but still meaningful upside potential.

QQHG provides three main potential benefits

• Participation in the Nasdaq-100. The team closely replicates the Nasdaq-100 Index for the core of the portfolio. We then employ an options overlay on the entire portfolio that aims to provide a majority of the index returns with less risk.
• Laddered downside risk mitigation in a single ETF. Our systematic approach employs diversified 1-year hedges, laddered monthly, allowing investors to own Nasdaq-100 exposure with consistent guardrails in place, without the need to select across multiple funds with varying defined outcome periods.
• No interest rate risk. Investors can maintain exposure to equities without additional asset classes to dampen volatility.

What makes this fund different?

When it comes to options-based defense strategies, there are primarily two categories of funds:

• Defined outcome or traditional buffer strategies. As the name suggests, these funds aim to achieve a predefined outcome over a set period, such as March 2025 to March 2026. However, clients often face two main issues with these strategies. First, they involve multiple vintages that may require active management across vintages as markets move. Second, these strategies are highly path-dependent and may have different outcomes depending on the market conditions when the investment is made.
• Hedged equity strategies, like QQHG. These are delivered as a single-ticker solution that mitigates path dependency through the use of laddered options, providing a rolling hedge to maintain dynamic protection.