Key insights
- The Invesco QQQ Trust ETF has historically outperformed the S&P 500 due to its heavy weighting in technology stocks, particularly large-cap growth names. While concerns about tech valuations exist, the article suggests QQQ is likely to continue outperforming the S&P 500 this year, driven by the performance of its top holdings. This ETF's performance is a strong indicator of the broader market's direction, especially for growth-oriented equities.
The S&P 500 (^GSPC 0.26%) is typically the benchmark investors use to determine whether a specific investment "outperformed" or "underperformed." Although plenty of Wall Street "experts" assemble and actively manage funds, most of them fail to outperform the S&P 500 over the long term.
One passively managed fund that has had the opposite fortune is the Invesco QQQ Trust ETF (QQQ 1.18%). Over the past two decades, it has been one of the better-performing ETFs on the market, and in that span, it has outperformed the S&P 500 16 times.
With it outperforming the S&P 500 to begin this year (through June 8), is it likely to keep its momentum rolling?
Here's how QQQ's total returns (which take dividends into account) compare to the S&P 500 over the past 20 years:
Much of QQQ's success has come from the technology boom over the past 20 years. Although it holds companies from almost all non-financial sectors, it has historically been a tech-leaning ETF. As of May 30, the tech sector accounted for 66.9% of QQQ.
Whether QQQ will outperform the S&P 500 this year will come down to the performance of these seven companies:
They're all among the top 10 holdings of both QQQ and the S&P 500, but the difference lies in how much each leans on them.
These companies account for 39.3% of QQQ, while "only" accounting for 31.9% of the S&P 500. When they're flourishing, QQQ is almost guaranteed to outperform the S&P 500. When they're struggling, the S&P 500 will struggle as well, but not as much.
A good example is June 5, when a big tech sell-off caused QQQ to drop 4.8%, while the S&P 500 fell 2.6%. Of course, that's a small sample size, but the same happened during the 2022 bear market.
Nobody can predict how stocks will perform, but I believe QQQ will beat the S&P 500 again this year. There are concerns that tech stock valuations are overinflated and due for a correction, but that's an issue both QQQ and the S&P 500 would have to reckon with.
Even if QQQ underperforms this year, it's still a great long-term investment. If you want to save a bit on fees, invest in its sister fund, the Invesco Nasdaq-100 ETF.