The Nasdaq Composite (^IXIC +0.35%) has fallen sharply as President Donald Trump has pushed for radical changes in U.S. trade policy. The technology-heavy index closed in correction territory on March 6, and it closed in bear market territory on April 4. But history says that this creates a buying opportunity for patient investors.
Since 2010, the Nasdaq Composite has returned an average of 21% during the year following its first close in correction territory. The index has also never failed to recoup losses sustained during past drawdowns, and there is no reason to expect a different outcome this time. In other words, while past performance is never a guarantee of future results, investors have good reason to expect a robust rebound in the next year.
That makes the Invesco QQQ Trust (QQQ +0.14%) a compelling investment idea today. Here are the important details.
Image source: Getty Images.
The Invesco QQQ Trust tracks the Nasdaq-100 index
The Invesco QQQ Trust measures the performance of the Nasdaq-100, an index that tracks the 100 largest non-financial companies on the Nasdaq Stock Exchange. The index fund is very concentrated in U.S. stocks in the information technology and communication services sectors. The "Magnificent Seven" account for about 42% of its invested assets.
The 10 largest holdings in the Invesco QQQ Trust are listed by weight below.
- Apple: 8.8%
- Microsoft: 8.3%
- Nvidia: 7.8%
- Amazon: 5.6%
- Alphabet: 5.2%
- Broadcom: 4%
- Meta Platforms: 3.4%
- Costco Wholesale: 3.1%
- Netflix: 2.8%
- Tesla: 2.6%
Importantly, the Invesco QQQ Trust provides exposure to several trendy technologies that promise to create substantial wealth for investors in the years ahead. They include artificial intelligence, cloud computing, autonomous robots and vehicles, and quantum computing.
SNPINDEX: ^GSPC
Key Data Points
The Invesco QQQ Trust has historically crushed the S&P 500
The S&P 500 (^GSPC 0.11%) is widely regarded as the single best benchmark for the U.S. stock market because it covers about 80% of domestic equities by market value. Index funds that track the S&P 500 have historically been a sound investment, and I do not expect that to change in the future, but the Invesco QQQ Trust has consistently crushed the S&P 500.
- 5 Years: The S&P 500 returned 105% over the last five years, while the Invesco QQQ Trust returned 123%.
- 10 Years: The S&P 500 returned 209% over the last 10 years, while the Invesco QQQ Trust returned 362%.
- 15 Years: The S&P 500 returned 494% over the last 15 years, while the Invesco QQQ Trust returned 949%.
- 20 Years: The S&P 500 returned 587% over the last 20 years, while the Invesco QQQ Trust returned 1,390%.
One caveat: The Nasdaq-100 being so heavily weighted toward the "Magnificent Seven" stocks creates concentration risk. The Invesco QQQ Trust could produce dismal returns if even a few of those companies underperform. However, the "Magnificent Seven" stocks had a weighted price-to-earnings ratio of 22.6 as of April 7, the cheapest valuation since January 2023, according to JPMorgan Chase.
Additionally, those companies are much more profitable than the other 493 companies in the S&P 500. The "Magnificent Seven" in aggregate reported 37% earnings growth last year, while the other 493 S&P 500 companies reported 7% earnings growth. Moreover, the "Magnificent Seven" are forecast to grow earnings 17% in 2025, while the remaining 493 companies are forecast to grow earnings 9%, according to LSEG.
The last item of consequence is the expense ratio. The Invesco QQQ Trust has an expense ratio of 0.2%, which means shareholders will pay $20 annually on every $10,000 invested in the fund. Comparatively, the average expense ratio is about 0.36% among U.S. index funds and mutual funds.
