What’s the difference between QQQ and TQQQ? Although these exchange-traded funds (ETFs) have similar ticker symbols and track the same index, there are some differences you should know before you invest.
What Is QQQ?
Invesco QQQ Trust, commonly known by its ticker symbol, QQQ, is an ETF that passively tracks the Nasdaq 100 Index. This index consists of the top 100 stocks, ranked by market capitalization, in the Nasdaq Composite Index.
The top sectors in QQQ are technology (50.97%), communications (18.38%), and consumer discretionary (16.13%).
Because of its heavy weighting in tech stocks, QQQ is considered to be an aggressive-growth stock fund. That means investors can expect higher short-term volatility, compared to a broader stock index, such as the S&P 500. Based upon its performance history, if you choose to invest, you may be rewarded with above-average returns in exchange for taking on the additional risk.
Pros and Cons of QQQ
Like other ETFs, QQQ can be a smart addition to your portfolio if it’s used wisely.
Pros of QQQ
- Diversification: Although the QQQ portfolio has a high concentration of technology stocks, this ETF invests in 100 stocks representing six sectors.
- Low cost: ETFs are known for their low expense ratios, and QQQ is no exception. Expenses for the fund are just 0.20% or $20 for each $10,000 invested.
- Potential for high returns: Past performance is no guarantee of future results, but QQQ has historically outperformed the S&P 500 index, especially for long-term returns. The 10- and 15-year returns for QQQ are 22.9% and 16.9%, respectively. These returns are significantly higher than those of the S&P 500, which are 16.5% and 10.6%, respectively.
Cons of QQQ
- Diversification: Although this is one of the pros for QQQ, it’s also one of the cons. This fund is more diversified than a technology sector fund, but it’s less diversified than the S&P 500 index.
- Market risk: Heavy concentration in the technology, communications, and consumer discretionary sectors means that the price of QQQ will be more volatile than a broader stock index, such as the S&P 500.
What Is TQQQ?
ProShares UltaPro QQQ (TQQQ) is a leveraged ETF that seeks daily returns, before fees and expenses, that are three times those of the Nasdaq 100 Index (or the QQQ ETF, which tracks the same index). For instance, if the QQQ rises in price by 1% in a day, the TQQQ would presumably rise by 3%.
If you choose to invest, you should keep in mind that the same 3x performance applies to the downside as well. If the QQQ falls in price by 1%, TQQQ could fall by 3%. That means that an investment in TQQQ would be a big bet that the Nasdaq 100 (or QQQ) would rise. Investors typically use TQQQ as a speculative tool for a short-term holding period.
Pros and Cons of TQQQ
TQQQ is a unique investment security, because it uses leverage to enhance the performance of the fund. You should give significant consideration to the pros and cons of this ETF prior to investing.
Note
“Leverage,” in finance, is a term used to describe borrowing or the use of debt instruments for financial gain. Examples include a brokerage margin loan or a futures contract.
Pros of TQQQ
- High performance: Since TQQQ is a 3x leveraged ETF tracking the Nasdaq 100 Index, investors can potentially receive returns that are three times that of the index, minus expenses.
- Limit orders: Leveraged funds can produce large short-term gains, but they can also produce large short-term losses. Since ETFs can be traded during the day like stocks, investors can place limit orders to sell at a specified price, which can limit extreme losses.
Cons of TQQQ
- Market risk: Leverage funds like TQQQ can see extreme swings in prices, which makes this ETF too risky for investors who have a low tolerance for volatility.
- Expenses: Most ETFs have expense ratios below 0.20%, whereas the expenses for TQQQ are 0.95%, or $95 for every $10,000 invested. Higher expenses reduce the total return to the investor more than comparable funds with lower expenses.
In general, QQQ is appropriate for investors who want a large-cap growth stock ETF that can potentially outperform the S&P 500 in the long run. TQQQ is appropriate for investors with a high tolerance for risk and for short-term investment periods.
For more detail on each ETF, see the Invesco webpage for QQQ and the ProShares webpage for TQQQ.
Frequently Asked Questions (FAQs)
What companies are in TQQQ?
TQQQ exposes investors to the same companies as QQQ—the 100 largest non-financial companies on the Nasdaq. However, TQQQ does not contain stocks in all those companies. It contains some stocks, but it mostly contains a derivative known as a "swap." These swaps on QQQ allow TQQQ to amplify the volatility.
What are the tax consequences of TQQQ?
Since TQQQ is typically held only for a short time, the only tax consequences for most traders are capital gains from their trading. TQQQ does issue dividends, but it doesn't do so as often or in amounts as large as QQQ's. If you are holding TQQQ when it issues dividends, you will have to pay taxes on them, as well.
What is the difference between QQQ and QQQQ?
QQQ once traded under the ticker symbol QQQQ. It has since dropped a "Q" but it still tracks the same companies in the same way.
As a seasoned financial expert with a comprehensive understanding of exchange-traded funds (ETFs) and a background in investment strategies, I can shed light on the nuanced differences between QQQ and TQQQ.
Firstly, let's delve into the details of QQQ, the Invesco QQQ Trust. This ETF passively tracks the Nasdaq 100 Index, comprised of the top 100 stocks by market capitalization in the Nasdaq Composite Index. Notably, QQQ has a heavy weighting in technology stocks, constituting 50.97% of its portfolio, along with significant allocations to communications (18.38%) and consumer discretionary (16.13%). The concentration in tech makes QQQ an aggressive-growth stock fund, translating to higher short-term volatility compared to broader indices like the S&P 500. Past performance indicates above-average returns, with 10- and 15-year returns at 22.9% and 16.9%, respectively.
Pros of QQQ include diversification across six sectors, low expenses (0.20%), and historical outperformance against the S&P 500. However, its cons lie in being less diversified than the S&P 500 and heightened market risk due to concentration in specific sectors.
Now, turning to TQQQ, or ProShares UltraPro QQQ, it differentiates itself as a leveraged ETF aiming for daily returns three times that of the Nasdaq 100 Index, which QQQ tracks. The leverage works both ways, magnifying gains and losses. Investors often view TQQQ as a speculative tool for short-term holding periods, given its heightened risk profile.
Pros of TQQQ involve the potential for high performance, with returns three times that of the index. Limit orders can be employed to mitigate extreme losses. On the flip side, TQQQ comes with cons, such as substantial market risk due to extreme price swings and higher expenses (0.95%) compared to most ETFs, impacting total returns.
To sum up, QQQ suits investors seeking a large-cap growth stock ETF with potential long-term outperformance against the S&P 500. On the other hand, TQQQ is for those with a high risk tolerance and a preference for short-term investment periods.
For more in-depth information on each ETF, I recommend consulting the official Invesco webpage for QQQ and the ProShares webpage for TQQQ. Additionally, the FAQs provide valuable insights into aspects like the composition of TQQQ, tax consequences, and the historical ticker symbol change from QQQQ to QQQ.
