QQQ’s Anniversary and Impact

Discover more about QQQ’s two-decades of resiliency and performance.

Blog Author

Ryan T. McCormack

Two decades of resiliency and performance

Over the years, the profile of Invesco QQQ ETF has changed significantly, despite maintaining the same basis for its investment (the Nasdaq-100 Index). For 20 years, QQQ has performed in a variety of market conditions in multiple sectors. It’s quite a feat for a fund to have lasted 20 years, but even more impressive is that a fund heavily weighted to technology has been able to outperform the market since inception1 despite launching just a year before dot - com bubble.

QQQ has outperformed in four out of the last five market environments

Since QQQ's launch in March 1999, we've experienced five separate market cycles, including the current bull market.

  • Tech run-up (3/10/1999 – 3/24/2000). The first distinct market was the ending portion of the tech bubble between March 1999 and March 2000. In a testament to the strong returns technology names saw during that period, QQQ returned 130.36% while the S&P 500 Index returned 20.89%.2
  • Tech bubble crash (3/25/2000 – 10/9/2002). Over the next 2.5 years, the technology bubble reversed, with many companies missing projections and some even going bankrupt. As a result, most equity market returns suffered. QQQ lost 82.86%, while the S&P 500 Index lost 47.38%.3
  • Credit bubble run-up (10/10/2002 – 10/31/2007). After a trough in equity markets in October 2002, equities began a five-year bull market that was the run-up of the credit bubble. During this time, QQQ returned 179.14%, outpacing the S&P 500 Index’s returns of 118.46%.4
  • Great Financial Crisis (11/1/2007 – 3/9/2009). Next came the Great Financial Crisis. In less than two years, QQQ lost 53.05% but performed slightly better than the S&P 500 Index, which lost 54.79%. QQQ’s outperformance of the market was largely due to the lack of financial firm holdings, which offered a buffer from the worst of the volatility.5
  • Current bull market (3/10/2009 – 11/30/2019). Over the current 10-year bull market, QQQ has seen its largest relative outperformance against the S&P 500 Index. QQQ has returned 731.16%, compared to the S&P 500’s returns of 445.69% — nearly double the returns of the S&P 500 Index.6

QQQ has outperformed the market in four of the five market environments since its inception, only underperforming during the tech bubble crash (hardly surprising for a fund heavily weighted in technology).

Returns During Up & Down Markets

Source: Bloomberg L.P., November 30, 2019. All returns are cumulative and at NAV. 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 4:00 p.m. EST 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.

Technology evolution: IT sector allocations within QQQ over time

In its early days, QQQ was more heavily invested in the traditional technology sector than it is today. Looking at year-end allocations by sector (GICS), QQQ's Information Technology (IT) weight has fallen over time. The highest value was 78% at the end of 2000 (close to the height of the tech bubble), but by the end of 2018, the fund's IT weight had decreased to 43%. This is due to the sector growth of Communication Services (driven by Facebook) and Consumer Discretionary (driven by Amazon), as well as non-technology companies such as Pepsi joining the Nasdaq.

QQQ Information Technology Weight Over Time (1999-2018)

Sources: Nasdaq, Bloomberg L.P. as of Dec. 31, 2018. Note: For earlier years, not all stocks could not be classified by a sector. For example, in 1999, 24% of stocks were unclassified, so the denominator used to calculated sector weights was 76%.

Tech bubble 2.0? A comparison of the recent environment to the tech bubble of 2000

Many investors are quick to call today’s market the “tech bubble 2.0.” However, when QQQ’s five largest holdings today are compared to its five largest holdings in March 2000, there are clear differences between market cap/net income, cash/market cap and recent returns.

  • Market cap/net income. When looking at the five largest companies in QQQ today (Microsoft, Apple, Amazon, Alphabet and Facebook) and evaluating the ratio of their market cap divided by trailing net income over the past year, we get a value of 22.7x. (While this is not exactly the same as a price-to-earnings [P/E] ratio, it can be used as close proxy.) Calculating this same value for the five largest companies within QQQ at the height of the tech bubble results in 77.8x.

Even if today’s largest QQQ holdings tripled in one day (a 200% increase in one day), they would still be “cheaper” than the five largest stocks in QQQ at the height of the tech bubble. For today’s companies to be more expensive on this basis, they would need to quadruple.

Market Cap Over Trailing Net Income for Five Largest Holdings

Sources: Nasdaq, Bloomberg L.P. as of Dec. 31, 2018. The height of the tech bubble is as of March 24, 2000.
  • Cash/market cap.The amount of cash held by these companies is another interesting comparison point between QQQ’s past and present holdings. Today, 16.75% of the aggregate market cap is equal to cash held by these five firms, compared to just 2.30% during the tech bubble.
  • Average returns.We see another stark difference when evaluating the average return of the five largest companies during these two time periods. At the height of the tech bubble on March 24, 2000, the average one-year return for the five largest QQQ holdings was 184.24%. Today, it is -0.97%. The three-year returns show a similar disparity, with today’s companies averaging an 86.52% cumulative return compared to 611.93% during the tech bubble. While the three-year returns recently witnessed by QQQ’s largest holdings are strong, they fall well short of the returns experienced during the euphoria of the tech bubble.7

Cash & Returns for Five Largest Holdings

Sources: Nasdaq, Bloomberg L.P. as of Dec. 31, 2018. Performance data quoted represents past performance. Past performance is not a guarantee of future results. The height of the tech bubble is as of March 24, 2000.

20 years of performance and innovation

While the portfolio may look quite different than it did 20 years ago, QQQ’s commitment to innovative companies remains the same. The past two decades have seen tremendous innovation across sectors — and QQQ has held many of the companies driving that transformation.

No one can predict what the next 20 years will bring, but as today’s leaders continue to reshape the world around us, QQQ offers investors the chance to invest in large, innovative companies with a global reach.

1. Between Mar. 10, 1999 and Jan. 31, 2019, Invesco QQQ (6.84% NAV) outperformed the S&P 500 Index (5.80%).
(Source: Bloomberg L.P.as of Jan.31, 2019.)
2. QQQ (NAV) and S&P 500 Index returns are cumulative. (Source: Bloomberg L.P as of Jan. 31, 2019.) 3. QQQ (NAV) and S&P 500 Index returns are cumulative. (Source: Bloomberg L.P as of Jan. 31, 2019.) 4. QQQ (NAV) and S&P 500 Index returns are cumulative. (Source: Bloomberg L.P as of Jan. 31, 2019.) 5. QQQ (NAV) and S&P 500 Index returns are cumulative. (Source: Bloomberg L.P as of Jan. 31, 2019.) 6. QQQ (NAV) and S&P 500 Index returns are cumulative. (Source: Bloomberg L.P as of Jan. 31, 2019.) 7. All returns are calculated as the average stock return of the five largest holdings within Invesco QQQ for each respective period.
Important Information
All data as of Dec. 31, 2018 unless otherwise stated. Beta is a measure of risk representing how a security is expected to respond to general market movements. Market cap is short for market capitalization which is the aggregate market value of a company represented in dollar amount. Net income is the entity’s income minus all cost, expense and taxes for that period. P/E Ratio is known as the price-earnings ratio which is used for valuing companies. The ratio of a company’s share price to the company’s earnings per share. Trailing net income is the measurement of net income over a period of time. The Nasdaq-100 Index comprises the 100 largest non-financial companies traded on the Nasdaq. 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. As of September 30, 2019, Microsoft (MSFT) made up 11.46%, Apple Inc (AAPL) made up 10.93%, Amazon (AMZN) made up 9.27%, Facebook (FB) made up 4.67%, Alphabet Inc (GOOG) made up 4.61%, Google (GOOGL) made up 4.06%, Intel Corp (INTC) made up 2.73%, Cisco Systems Inc (CSCO) made up 2.53%, Comcast Corp (CMCSA) made up 2.45%, and Pepsico Inc (PEP) made up 2.30% of Invesco QQQ ETF. Holdings subject to change and are not buy/sell recommendations.

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