The QQQ Fund, Now a $250 Billion Behemoth, Turns 25 (2024)

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.

The AI frenzy has expanded beyond traditional bets like Nvidia and Microsoft to include stocks like Arm Holdings, the U.K. chip maker whose shares soared nearly 50% in a single session last week. Other risky investments, like bitcoin, are surging. The token recently eclipsed $50,000 for the first time since late 2021, when near-zero interest rates had investors chasing all kinds of speculative assets.

Investors and analysts tend to get nervous when just a handful of big stocks are responsible for most of the market’s gains because they worry a broader pullback could be in store if a few companies stumble. Current prices reflect expectations for massive growth and adoption of AI in the coming years, though the nascent technology has little track record.

Yet through the highs and lows in the tech industry, the inflows into QQQ have been consistently strong. By the end of 2000, QQQ had nearly $24 billion in assets, according to Morningstar. Today, it has roughly $250 billion and is the fifth-largest U.S. ETF behind four broader stock market funds.

ETFs, which let investors buy and sell hundreds of stocks through a single, publicly traded share, have become ubiquitous in the decades since QQQ’s launch. They popularized the idea of simply following the market, a strategy known as passive investing that Nasdaq promoted as part of its QQQ advertising campaign after launch.

Investors now take the ability to cheaply and quickly buy broad baskets of stocks for granted. In 1999, the sudden ability to invest in all Nasdaq-100 companies at once was revolutionary. There were no other funds tracking the index.

Nasdaq pumped millions into advertising QQQ, and the fund was a near-overnight hit in part because it kept going up.

“Day after day the Nasdaq was going up, and people were asking, ‘How do I get into this?’ The answer was the Qs," said John Jacobs, a former Nasdaq executive who led the launch of QQQ.

“There was a tech bubble, new companies were going public left and right, and people were learning day trading for the first time. QQQ was the poster child for everything going on and put ETFs on the map for retail investors," he added.

Nasdaq eventually reached a revenue-sharing and licensing agreement with PowerShares, which took over the fund in 2007, shortly after Invesco bought PowerShares.

Today, QQQ is Invesco’s largest fund and there’s a significant ecosystem around it, allowing investors to get long, short, inverse or leveraged exposure. The asset manager also now offers QQQM, a cheaper version aimed at individual investors who don’t require the liquidity that large institutions covet.

Write to Jack Pitcher at jack.pitcher@wsj.com