Invesco’s New QQQ ETFs Target Tech Concerns

Large tech companies’ growing share of market indexes has pushed Invesco to launch two distinctly different approaches to investing in the Nasdaq-100, offering investors tools to either amplify or reduce their exposure to mega-cap tech stocks.

The divergent strategies reflect a key challenge facing investors grappling with whether to follow market momentum or traditional investment theories, according to Nick Kalivas, head of factor and equity ETF strategy at Invesco.

“In recent years, there has been a stepped up appetite among the investment community for access to the big mega-cap names,” Kalivas said. “I think that it's a little bit contrary to the academic research and the practitioner research, which typically talks about smaller companies outperforming larger companies.”

The funds aim to address this dilemma by offering investors choice in how they approach the Nasdaq-100, according to Kalivas. While QBIG provides concentrated exposure to mega-caps’ innovation spending and growth, QQLV allows investors to maintain market exposure while potentially reducing downside risk.

New QQQ Strategies Target Different Risks

The Invesco Top QQQ ETF (QBIG) concentrates on the largest companies, targeting the top 45% of the Nasdaq-100 Index. Its current holdings show this focus, with Apple, Nvidia and Microsoft each comprising over 11% of the portfolio, according to Invesco.

At the other end of the spectrum, the Invesco QQQ Low Volatility ETF (QQLV) seeks lower-risk stocks within the Nasdaq-100 resulting in a portfolio dominated by industrials and consumer staples rather than technology companies.

These contrasting approaches reflect research showing mega-cap tech companies now spend more on R&D than in the past. According to Kalivas, the largest Nasdaq-100 have increasingly devoted more spending in research and development over the past decade, fueling innovation and growth.

Rather than using fixed lists of top stocks like “Magnificent Seven,” QBIG’s flexible approach allows it to adapt as market leaders change, Kalivas noted.

“If you roll back to the financial crisis era, you would see companies like Kiva or Research In Motion or Qualcomm or Oracle kind of be present there,” Kalivas said. “Those companies no longer make up that much market cap, so we wanted to design an index that could be flexible.”

QQLV takes a different path, drawing on research about the “low volatility anomaly” discovered in the 1970s showing that lower-risk stocks can outperform higher-risk ones on a risk-adjusted basis, Kalivas explained. The fund currently has nearly 30% in industrials and 22% in consumer staples.

The funds can be used separately or together depending on an investor’s goals, Kalivas added. While QBIG provides concentrated exposure to mega-caps’ growth potential, QQLV aims to capture Nasdaq-100 exposure with less downside risk during market declines.