The Invesco QQQ Trust (ticker: QQQ) is the second-most-traded exchange-traded fund in the U.S., behind only State Street’s immensely popular SPDR S&P 500 ETF Trust (SPY). When most investors think about mirroring the Nasdaq-100 Index, they gravitate toward QQQ.
Invesco has also introduced a similar ETF option for long-term investors, the Invesco Nasdaq-100 ETF (QQQM). This fund also gives exposure to the Nasdaq-100, and it has nearly identical year-to-date and one-year returns to the famed QQQ ETF.
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Ultimately, the funds you put into QQQ can’t simultaneously go into QQQM. So, what makes these ETFs different from each other? It’s easier to start with how they are the same. Here’s what you need to know about how QQQ compares to QQQM:
— QQQ vs. QQQM: The similarities.
— QQQ vs. QQQM: The differences.
— Who should buy QQQM?
— Who should buy QQQ?
— Should long-term investors sell QQQ and buy QQQM instead?
— What to consider before buying a Nasdaq-100 ETF.
QQQ vs. QQQM: The Similarities
Both funds track the Nasdaq-100, which gives investors exposure to 100 leading non-financial companies listed on the Nasdaq. It’s no surprise to see the Magnificent Seven stocks dominating the top 10 holdings of each fund, but their allocation is nearly identical as of May 31.
QQQM allocates just a hair more of its total portfolio to the Magnificent Seven stocks (or the BATMMAAN stocks, if you add Broadcom Inc. (AVGO) to the dominant bunch of tech stocks).
QQQ’s top three holdings are Microsoft Corp. (MSFT) (8.6%), Nvidia Corp. (NVDA) (8.56%), and Apple Inc. (AAPL) (7.57%), positioning it to benefit nicely from artificial intelligence tailwinds.
Meanwhile, the top three holdings for QQQM are also Microsoft (8.58%), Nvidia (8.55%) and Apple (7.56%). As you can see, there’s just a hair bit of difference here and for the remainder of the top 10 holdings, which represent 50% of the QQQ and QQQM portfolios. Furthermore, each ETF rebalances its positions quarterly and reconstitutes them annually.
QQQ and QQQM spread their capital across the same sectors and have nearly the same amount of exposure to each one. Both funds give you outsized exposure to the tech sector. Any differences are just as negligible as the percentage difference for each of the fund’s top three holdings.
QQQ and QQQM both offer an opportunity to outperform the S&P 500. While their returns are unsurprisingly similar year to date, QQQM has gained an annualized 19.83% over the past three years, and QQQ has gained an annualized 19.78% with a nearly identical portfolio, mostly due to its slightly higher fees.
QQQ vs. QQQM: The Differences
While it’s easier to spot similarities than differences in the beginning, it’s possible to see a few differences if you take a closer look.
The first main difference is the expense ratio. QQQ has a 0.2% expense ratio, while QQQM has a lower fee level of 0.15%. In other words, you’re giving up less of your gains with QQQM.
QQQM’s lower expense ratio is notable, especially because it doesn’t have as many assets as QQQ.
The original Nasdaq-100 ETF has $333.6 billion in total assets, compared with QQQM’s $48.4 billion. Normally, ETFs with more assets under management have lower expense ratios because they can spread the costs across more capital.
QQQM also has a 30-day SEC yield of 0.67%, which is higher than QQQ’s 0.55% SEC yield. Both ETFs have a trailing-12-month yield of 0.58%. A higher yield and a lower expense ratio may make QQQM feel like the obvious choice, but there are additional factors to consider.
As the second-largest ETF, QQQ enjoys incredible trading volume and liquidity. Spreads are more favorable for QQQ than they are for QQQM, and asking prices for QQQ will be closer to the market price than for QQQM.
Higher volume and better spreads make QQQ the better choice for traders, especially options traders. QQQ has daily options available, giving traders more flexibility with how they set up their strategies.
Options traders don’t have as much flexibility with QQQM options, which aren’t always available each month. So, QQQM doesn’t make as much sense for options traders since QQQ and QQQM will have nearly identical movements in the near term, including one-day, five-day and one-month periods.
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Who Should Buy QQQM?
QQQM is more suitable for long-term investors who have no plans to sell their shares. QQQM has a lower expense ratio and a higher 30-day SEC yield, allowing you to earn more money by choosing this Nasdaq-100 ETF.
Lawrence Klayman, founding partner of KlaymanToskes PLLC, explains some of the additional benefits of buying QQQM over QQQ. “QQQM is attractive for young or newer investors drawn to the lower price per share and expense ratio and its greater simplicity. It’s also more tax-efficient because it minimizes capital gains distributions compared to QQQ,” Klayman explains.
Yes, you will have to pay a bit more to buy shares thanks to the spread. However, the extra expense is minimal, and you will make it back with a lower expense ratio and a higher yield. While the higher spread only impacts your trade once, the expense ratio and yield give QQQM investors an edge for years to come.
Who Should Buy QQQ?
QQQ is more suitable for day traders who want lower spreads and higher liquidity. QQQ also blows QQQM away with the amount of options contracts that are available. QQQ allows for more complex strategies since you can trade options that expire any day of the work week, excluding days when the stock market is closed.
While QQQM produces a slight long-term edge over QQQ, this edge doesn’t matter much for day traders. Lower spreads, options versatility and high liquidity are more valuable for this group.
“QQQ may be a good choice for options and derivatives traders because it offers a greater variety of spreads, straddles and exotic contracts. This can be a draw for experienced investors and traders who use options for hedging or income generation,” Klayman mentions.
“Additionally, if you frequently reallocate capital or practice tactical asset allocation, QQQ’s higher liquidity facilitates quick entry and exit.”
Should Long-Term Investors Sell QQQ and Buy QQQM Instead?
Long-term investors have been pouring their money into QQQ for many years. The widely known ETF was launched in 1999 and has facilitated a sizable nest egg for some investors.
While you’re missing out on some additional gains if you’re invested in QQQ instead of QQQM, most investors with QQQ should continue to ride it out. That’s because selling QQQ will trigger capital gains taxes. While long-term investors get to enjoy lower capital gains tax rates, it’s still going to hurt your total returns.
If you have QQQ stock at a loss, you can sell shares to realize the net loss and then move the funds into QQQM. Moving funds from QQQ to QQQM gives you exposure to the same benchmark without resulting in a wash sale.
What to Consider Before Buying a Nasdaq-100 ETF
Investing in a Nasdaq-100 ETF has been a great choice for investors recently. QQQ has generated an annualized 17.7% return over the past decade. Returns have accelerated in recent years, based on an annualized 18.1% return over the past five years.
However, past returns do not guarantee future outcomes, and it’s important to review any ETF’s holdings before making a decision. QQQ and QQQM both offer investors outsized exposure to the tech sector. Furthermore, they prioritize corporate giants instead of opting for small- and mid-cap stocks.
Large-cap stocks are typically more stable and are household names. While small- and mid-cap stocks can outperform large-cap stocks, those investments are more risky and require additional research.
If you buy QQQ or QQQM, you should monitor the Magnificent Seven stocks: Apple, Nvidia, Microsoft, Alphabet Inc. (GOOG, GOOGL), Amazon.com Inc. (AMZN), Meta Platforms Inc. (META) and Tesla Inc. (TSLA). These stocks make up a high percentage of QQQ and QQQM. They have a history of outperforming the stock market, but if these stocks fall, Nasdaq-100 ETFs will have a hard time generating meaningful gains for long-term investors.
These ETFs also tend to get hit the hardest when the economy slows down. For instance, QQQ dropped by 32.49% (net asset value) in 2022, which was much worse than the 18.14% drop SPY registered in the same year. (QQQM fell 32.46%.) QQQ and QQQM have more exposure to the Magnificent Seven stocks than SPY, and the Nasdaq-100 ETFs also don’t have exposure to financial stocks.
“Investors should be comfortable with the higher volatility and risk that comes with concentration in the Magnificent Seven and consider supplementing their investments with other asset classes,” Klayman suggests.
Investors should assess their financial goals and risk tolerances before deciding if QQQ, QQQM or another ETF is right for them.
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QQQ vs. QQQM: What’s the Difference? originally appeared on usnews.com
Update 06/02/25: This story was published at an earlier date and has been updated with new information.
