Invesco doubles down on Nasdaq dominance with ‘QQQ Innovation’ suite

Oct 14th, 2020 | By | Category: Equities

Invesco has launched two new Nasdaq-focused ETFs in the US that complement QQQ, its $145 billion Nasdaq 100 ETF.

Invesco doubles down on Nasdaq dominance with 'QQQ Innovation' suite

Invesco has launched two new Nasdaq-focused ETFs as part of what it is calling its ‘QQQ Innovation’ suite.

Along with QQQ, the ETFs form part of what Invesco is calling its ‘QQQ Innovation’ suite of funds.

The new additions include the Invesco Nasdaq 100 ETF (QQQM US), a lower-cost Nasdaq 100 tracker, and the Invesco Nasdaq Next Gen 100 ETF (QQQJ US), which targets mid-cap companies beyond QQQ.

Nasdaq 100

The Nasdaq 100 consists of 100 of the largest non-financial companies listed on Nasdaq and is widely seen as a barometer of the health of the US large-cap technology, media, and telecom (TMT) sector.

With tech stocks firmly driving the stock market rally in recent months, the Nasdaq 100 has significantly outperformed other prominent US large-cap benchmarks – the index is up 37.9% year-to-date compared to 10.8% for the S&P 500 and 2.3% for the Dow Jones Industrial Average (data as of 12 October).

QQQ, being the only regular, unleveraged Nasdaq 100 ETF in the US, has benefitted enormously from this dynamic. Its assets under management have grown by more than $57bn YTD, including nearly $20bn in net inflows.

With QQQ enjoying such resounding success, the introduction of a lower-cost version – QQQM comes with an expense ratio of 0.15%, five basis points cheaper than QQQ – may seem like an odd decision. A closer look at QQQ’s trading stats illuminates the reasoning behind the launch.

While QQQ is the fifth-largest ETF globally, it is the second most-traded ETF based on average daily trading volume, reflecting its de facto position as the go-to trading tool for US large-cap tech-leaning exposure. The bulk of QQQ’s assets is held by larger institutional investors which are likely to continue favouring the ETF’s robust liquidity and tight bid/ask spreads over a five basis point reduction in management fee. But by launching a lower-cost alternative, Invesco will be hoping to extend its Nasdaq 100 dominance to the retail market, which consists of longer-term, increasingly more cost-conscious investors.

Of course, Invesco could have simply just reduced the fee on QQQ, but a five basis point fee cut on this fund translates into a reduction of income for Invesco of $72.5m per annum and it wouldn’t want to do that, would it?!

It should be noted that QQQM has also been listed with a more affordable share price – currently around $120 compared to QQQ’s $294 – further helping to woo so-called ‘mom and pop’ investors.

Next Generation

Invesco’s second launch, QQQJ, tracks the Nasdaq Next Generation 100 Index which comprises the largest 100 Nasdaq-listed companies outside of the Nasdaq 100. As with the Nasdaq 100, the index does not contain financial securities such as banking and investment companies.

Constituents are weighted by market capitalization. The index is reconstituted annually and rebalanced quarterly.

Similar to the Nasdaq 100, the mid-cap index is heavily focused on TMT stocks with a weight of 46.0% in information technology and 10.6% in communication services. The index is, however, far less concentrated at the security level than the Nasdaq 100 – the largest constituent has a weight of just 2.7%, while the largest five constituents in the Nasdaq 100 (Apple, Microsoft, Amazon, Alphabet, and Facebook) account for around 45%.

The ETF also comes with an expense ratio of 0.15%.

‘Forefront of innovation’

John Hoffman, Head of Americas, ETFs & Indexed Strategies, Invesco, commented, “When it launched 20 years ago, the Invesco QQQ ETF was a pioneer in simplifying how investors gained access to companies within the Nasdaq 100 Index.

“With the launch of the Invesco QQQ Innovation Suite, we are expanding on this and offering additional ways to access companies at the forefront of innovation. By building this suite with Nasdaq, Invesco will enable clients to select the personalized combination of strategies that best suits their needs and time horizons.”

Sean Wasserman, Vice President and Head of Index and Advisory Services for Nasdaq, added, “The resilience of QQQ is a testament to the strength of the Nasdaq 100 Index and to the enduring partnership of Invesco and Nasdaq. This further expands the Nasdaq 100 ecosystem in a way that brings a new level of access and innovation to the investing public.”

Nasdaq Q-50

As an aside, investors interested in Nasdaq-focused strategies might also wish to take a look at the VictoryShares Nasdaq Next 50 ETF (QQQN US). Sponsored by VictoryShares, this fund provides exposure to the Nasdaq Q-50 Index which tracks the 50 stocks that are next in line for inclusion in Nasdaq-100, i.e. those stocks falling just outside the top 100. The fund launched in September and has already gathered $72m in assets. It comes with an expense ratio of 0.18%.

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