QQQ: PowerShares QQQ
The PowerShares QQQ (QQQ | A-67) is one of the more interesting ETFs in the market. Also known as the "cubes" or the "Q's," the fund tracks an index that seemingly makes no sense. That hasn't dampened popularity for the fund one iota, and it's currently the second-most-actively traded ETF in the United States.
Launched in March 1999, QQQ was initially called the Nasdaq-100 Trust, Series 1 and it traded on the American Stock Exchange. Though now owned by Invesco PowerShares, the ETF was initially introduced by Nasdaq itself, with the aim of increasing trading volume in Nasdaq-listed securities.
To that end, the ETF tracked the Nasdaq-100, an index designed by the stock exchange that comprised the 100 largest nonfinancial securities that traded exclusively on the Nasdaq. The financial companies were relegated to their own index, giving the Nasdaq-100 a heavy bias toward health care, consumer discretionary and in particular, technology.
For the Q's, the timing of the launch couldn't have been better. The late '90s were the heyday of the dot-com bubble, and investors were gaga for all things tech. The fund gained immediate traction, and the ETF quickly became the most-traded security on the stock market.
Nearly a year after the QQQs launched, the tech bubble reached its peak, and the fund hit its highest point ever, at $120.50, 135% above where it was only 12 months earlier. Unfortunately for tech enthusiasts, the mania didn't last, and the subsequent bursting of the Internet bubble sent the ETF plunging to an all-time low of $19.76 in October 2002, a loss of 84% from its peak.
Recently, the Q's have made a comeback alongside the broader stock market, with the fund trading as high as $114 this year. Throughout its wild swings, the ETF has remained popular, and the No. 1 choice for many tech traders, even though the fund only has about a 54% weighting in the technology sector.
"The Nasdaq-100 doesn't have any financials, but it doesn't mean it's all tech," said John Jacobs, senior advisor of Nasdaq, Inc.
"If you look at the breakdown, it includes all sorts of industries. It's [really] a nonfinancial growth index," he added.
Perhaps a big reason for QQQ's consistent popularity is its relatively large marketing budget. According to the fund's prospectus, 0.05% of the fund's assets are used annually for marketing purposes.
Using the current asset base of nearly $40 billion, that's a $20 million budget for advertising, which translates into exposure not just for the Q's, but ETFs as a trading and investment vehicle more generally.