If you want to see how much “prices” have been replacing “investing,” then look no further than the Nasdaq-100 benchmarked Invesco QQQ Trust ETF. Look at how the money just follows the prices. This cannot end well. Stay tuned. Jack Pitcher details the questions surrounding the ETF in The Wall Street Journal, writing:
Technology companies are powering the stock market ever higher, a few widely held stocks are responsible for most of the gains, and Microsoft is the U.S.’s most valuable company.
The year is 1999, a date that also marks the debut of the Invesco QQQ Trust exchange-traded fund, known as QQQ. Its launch transformed the investing world in some ways. Yet tech investors still face some of the same fundamental questions—and market dynamics—25 years later.
The fund, once synonymous with the dot-com boom and bust, has grown into a $250 billion behemoth. It is the primary tool used by investors big and small to gain broad exposure to big tech stocks.
QQQ, which invests in the 100 largest nonfinancial companies listed on the Nasdaq stock exchange, will turn 25 next month. It has ridden major ups and downs over that period but been a winner for buy-and-hold investors: A $1,000 investment on the fund’s March 10, 1999, debut would have been worth $9,394 at the end of 2023 when reinvesting dividends, almost double a similar investment in a fund tracking the S&P 500.
Microsoft, now valued at just over $3 trillion, is QQQ’s largest holding today just as it was in 1999. Apple was in the fund at launch, as was Amazon.com. Those companies have dramatically shifted their core businesses in the past 25 years while remaining dominant stock market performers.
“People forget that Amazon rose to prominence because it was trying to put Barnes & Noble out of business,” said Ryan McCormack, an Invesco senior ETF strategist who covers QQQ. “Apple made computers and then iPods. Microsoft sold software on CD-ROMs.”
Nasdaq launched QQQ near the peak of the dot-com bubble. It popped not long after the fund’s launch, sending shares crashing more than 80% between early 2000 and late 2002. Investors who bought in 1999 and 2000 were underwater on their investment for more than a decade, highlighting the boom-and-bust nature of tech investing.
Although few investors are predicting a repeat of 2000, some say they see eerie similarities in today’s market. The Nasdaq-100 soared 54% last year. A mania over artificial intelligence and a handful of big tech stocks are propelling major stock indexes to repeated records.
Action Line: The danger, as Your Survival Guy has explained in my series, The Truth Behind the S&P 500, is not inherently in any one company. Instead, the danger lies in the increasing reliance of index-linked products on a smaller number of big companies. An alternative to owning index funds is owning a diversified portfolio of individual securities. When you want to talk about individual securities in your portfolio, I’m here. In the meantime, click here to subscribe to my free monthly Survive & Thrive letter.
