Chipmaker Nvidia (NVDA +2.59%) has been one of the hottest growth stocks on the market, with shares more than tripling in the past year alone. But the hedge fund billionaires listed below sold down their positions in Nvidia during the fourth-quarter and reallocated some capital to two high-growth index funds, the Invesco QQQ Trust (QQQ +0.14%) and the iShares U.S. Technology ETF (IYW +0.33%).
- Israel Englander of Millennium Management sold 1.7 million shares of Nvidia in the fourth quarter, trimming his stake by 45%. He simultaneously increased his position in the Invesco QQQ Trust by 53%, and he started a new position in the iShares U.S. Technology ETF.
- John Overdeck and David Siegel of Two Sigma Investments sold 30,663 shares of Nvidia in the fourth quarter, trimming their stake by 5%. Meanwhile, the pair upped their position in the Invesco QQQ Trust by 75%, such that it now ranks as Two Sigma's second-largest holding. They also increased their stake in the iShares U.S. Technology ETF by 214%.
Those index funds are particularly attractive because they outperformed the S&P 500 over the last 10 years. Specifically, while the S&P 500 advanced 228% during that period, the Invesco QQQ Trust returned 440% and the iShares U.S. Technology ETF soared 528%.
Here's what investors should know about those index funds.
NASDAQ: QQQ
Key Data Points
1. The Invesco QQQ Trust
The Invesco QQQ Trust measures the performance of the Nasdaq-100, which tracks the 100 largest companies on the Nasdaq Stock Exchange. The index fund is heavily weighted toward the information technology (58.9%) and consumer discretionary (17.9%) sectors, the only two market sectors to beat the S&P 500 over the last decade.
The 10 largest positions in the Invesco QQQ Trust are detailed by weight below.
- Microsoft: 8.6%
- Apple: 7.8%
- Nvidia: 6.2%
- Alphabet: 5.6%
- Amazon: 5.6%
- Meta Platforms: 4.5%
- Broadcom: 4.3%
- Tesla: 2.5%
- Costco Wholesale: 2.4%
- Netflix: 1.8%
As mentioned, the Invesco QQQ Trust returned 440% over the last decade, but its outperformance goes even further back. The index returned 1,370% over the last two decades, compounding at 14.3% annually. At that pace, $100 invested weekly (about $434 per month) would now be worth $587,500. By comparison, the same amount invested in an S&P 500 index fund would be worth $333,100.
The price of that outperformance was volatility. The Invesco QQQ Trust has a three-year beta of 1.19, meaning the index fund moved 119 basis points (1.19 percentage points) for every 100-basis-point movement in the S&P 500. Remember, volatility cuts both ways. It can drive significant outperformance when stocks are going up, but it can lead to significant underperformance when stocks are going down.
The last item of the note is the expense ratio. The Invesco QQQ Trust carries a relatively low expense ratio of 0.2%, meaning the annaul fees would total $20 on every $10,000 invested. That makes this index fund a very compelling option for investors comfortable with volatility.
NYSEMKT: IYW
Key Data Points
2. The iShares U.S. Technology ETF
The iShares U.S. Technology ETF measures the performance of 131 stocks in the information technology sector, letting investors spread money across the consumer electronics, semiconductor, and software markets. The index fund is rebalanced quarterly to ensure (1) no single position is weighted more heavily than 22.5% and (2) the sum of positions exceeding 4.5% do not collectively represent more than 45% of the fund.
The 10 largest positions in the iShares U.S. Technology ETF are listed by weight below.
- Microsoft: 18.1%
- Apple: 15.5%
- Nvidia: 12.6%
- Alphabet: 5.9%
- Meta Platforms: 3.6%
- Broadcom: 2.9%
- Salesforce: 2.4%
- Adobe: 2.1%
- Advanced Micro Devices: 1.9%
- Qualcomm: 1.9%
The iShares U.S. Technology ETF has consistently outperformed the S&P 500. I've already mentioned that it beat the market over the last decade, but the index fund also returned 1,240% over the last two decades, compounding at 13.8% annually. At that pace, $100 invested weekly would now be worth $547,900. The same amount invested in an S&P 500 index fund would be worth $333,100.
Similar to the Invesco QQQ Trust, the price of that outperformance was volatility. The iShares U.S. Technology ETF has a three-year beta of 1.24, meaning it moved 124 basis points for every 100-basis-point movement in the S&P 500. More concerning, the iShares U.S. Technology ETF carries a rather high expense ratio of 0.4%. For context, the average expense ratio on U.S. ETFs was 0.37% in 2022, according to Morningstar.
Personally, I like the idea of direct exposure to the high-growth information technology sector, but I would rather own the Vanguard Information Technology ETF (VGT +0.42%). Not only did it perform a little better over the last two decades, compounding at 14.1% annually, but also it carries a much lower expense ratio of 0.1%.
