An important part of investing is making sure that you're investing in stocks that fit your personal goals, time horizon, and risk tolerance. That's why, in some cases, the average person shouldn't follow all the moves made by billionaires and billion-dollar hedge funds.
However, there are instances where following billionaires' moves can be a smart choice, especially when it comes to exchange-traded funds (ETFs), because they're not reliant on a single company. One ETF that has gotten the attention of a few billionaires recently is the Invesco QQQ Trust (QQQ -1.40%). In the first quarter, three prominent billionaire investors and hedge funds added to their positions:
| Investor | Hedge Fund Name | Shares Added |
|---|---|---|
| Ken Griffin | Citadel Advisors | 2.2 million |
| Israel Englander | Millennium Management | 474,300 |
| Steven Cohen | Point72 Asset Management | 7,950 |
Data source: Fintel. Table by author.
QQQ's past performance and future potential easily explain these hedge funds' moves. If you're looking for an investment that could turn $500 monthly investments into $500,000-plus over the next couple of decades, this could be your ticket.
Image source: Getty Images.
Why go with the Invesco QQQ Trust?
This ETF mirrors the Nasdaq-100, an index tracking the largest 100 nonfinancial companies listed on the Nasdaq stock exchange. You can think of it as a subset of the larger Nasdaq Composite (^IXIC -1.46%), which essentially contains all stocks listed on the exchange.
If you're looking for a well-diversified ETF, this likely isn't your cup of tea; it's very tech-heavy, with the sector making up over 60% of the fund. The consumer discretionary (19.44% of the ETF), healthcare (4.82%), industrial (4.35%), and telecommunications (4.30%) sectors round out the top five represented sectors.
Part of the reason it's so tech-heavy is that it's weighted by market cap, and mega-cap tech stocks have exploded in valuations in recent years. Below are the ETF's top 10 holdings (as of Aug. 13):
- Nvidia: 10.00%
- Microsoft: 8.74%
- Apple: 7.83%
- Amazon: 5.52%
- Broadcom: 5.45%
- Alphabet: 5.16% (both classes included)
- Meta Platforms: 3.82%
- Netflix: 2.90%
- Tesla: 2.75%
- Costco Wholesale: 2.40%
How the Invesco QQQ Trust could turn $500 monthly into over $500,000
This ETF has routinely been a market-beater and has produced some impressive returns over the past 20 years. In that span, the ETF is up over 1,360% (1,590% when including dividends). These average out to over 14% and 15% average annual returns, respectively.
These past gains don't guarantee that it will continue to happen, but for the sake of illustration, let's see how monthly $500 investments could play out over time with slightly more modest average annual returns:
| Years Invested | 10% Average Annual Returns | 12% Average Annual Returns | 14% Average Annual Returns |
|---|---|---|---|
| 15 | $187,600 | $220,100 | $258,800 |
| 20 | $335,900 | $422,400 | $533,400 |
| 25 | $572,600 | $775,700 | $1.057 million |
Returns calculated using Investor.gov compound interest calculator. Total rounded down to the nearest hundred. Table by author.
Even taking into account the ETF's 0.20% expense ratio, which these totals do, it has the ability to be a lucrative investment. All you need is time to let compound earnings work its magic.
Why I think the Invesco QQQ could continue its impressive returns
This ETF's top 10 holdings make up over 52% of the fund, so their performance will greatly impact the fund's performance. And except for Costco, these are all major tech stocks. This could work out in the ETF's favor because these companies are operating in industries that are poised for high growth for the foreseeable future.
The most obvious driver would be the current artificial intelligence (AI) boom we're experiencing. Aside from the efficiency boost the companies stand to gain from AI developments, these are companies that operate in all phases of the ecosystem.
Nvidia and Broadcom provide chips and other hardware powering data centers; Amazon, Microsoft, and Alphabet provide the cloud infrastructure that makes deploying AI possible; Meta will be the blueprint for using AI in advertising; and Apple is in the process of investing billions and further integrating AI into its hardware products.
Of course, nobody can predict how a stock or ETF's performance will go. However, this ETF has all the ingredients to be a lucrative investment for some time. And it's not just about AI, either. Its holdings cover many booming industries.
