Investments are made for the long term. Wouldn’t it be nice to know that companies have the same focus on the future? Innovation can be a big driver of growth. It doesn’t happen overnight, though. Rather, it is the result of a disciplined approach to planning, investing and executing strategic plans. Innovation takes time — very often years — and can be expensive.
One way to measure a dedication to innovation is to look at research and development (R&D) investments. For accounting purposes, R&D investment can be a drag on earnings in the year the investment is made, but companies hope that commitment to development will result in higher profitability down the road. Ironically, one way to increase profitability in the current year is to cut R&D investments. However, this likely does not help the firm over the long term. Comparing Invesco QQQ’s underlying index, the Nasdsaq-100, to the S&P 500 and Russell 1000 Growth Indexes shows that companies held in Invesco QQQ offer higher total dollars spent on R&D, as well as a larger percentage of sales reinvested back into the companies via R&D.