In the past decade, the Invesco QQQ Trust (QQQ 2.65%) has generated a total return of 627% (as of June 4). This monster performance crushes the 326% total return of the S&P 500 index over the same 10 years.
The best investors operate with an extended time horizon. That past performance is part of why they might be eyeing the Invesco QQQ Trust as a potential portfolio opportunity right now.
Veteran investors know that past performance provides no guarantee of future results. So, where will this popular exchange-traded fund (ETF) be in 10 years?
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Key bull and bear cases
On the one hand, the trends that have propelled the Invesco QQQ Trust in the past aren't letting up. The ETF's top positions, like Nvidia, Apple, and Microsoft, have become truly dominant businesses. They offer products and services in high demand globally, possess proven pricing power, have wide economic moats, generate robust profits, and still have growth prospects. These companies are unlike anything we've seen in the history of the capital markets.
Ongoing currency debasement also encourages greater risk-taking by investors. Rising debt levels and money supply drive capital to assets. This can easily drive investor bullishness.
On the other hand, the Invesco QQQ Trust is trading at record levels. It's no surprise that valuation is a leading concern. Higher starting price-to-earnings ratios, all else equal, can portend weaker investment returns going forward.
Additionally, an unprecedented amount of capital is flooding into the build-out of artificial intelligence (AI) infrastructure. As the Invesco QQQ Trust is a tech-heavy ETF, if all this spending proves to be wasteful, investor sentiment might take a hit.
NASDAQ: QQQ
Key Data Points
Optimists make money
The Invesco QQQ Trust's trailing-10-year annualized total return of 21.9% is exceptional. Had you invested $10,000 in this ETF in early June 2016, you'd have over $72,000 today.
It's impossible to say, but I wouldn't be surprised if the Invesco QQQ Trust ETF continues to deliver mid-teens annual returns over the next decade. Even in an elevated interest rate environment, the market keeps marching higher. This tells me that the relationship between macroeconomic variables, equity valuations, and stock gains that investors might be accustomed to just isn't the same anymore. The currency debasement mentioned earlier will continue to have a major impact.
While the Invesco QQQ Trust trades at record levels now, investors should still consider it a smart way to gain exposure to various technological trends. Besides AI, you can have access to cloud computing, semiconductors, e-commerce, digital payments, and digital advertising. These are areas optimists invest in.
And at an expense ratio of 0.18%, investors can keep more of their money over time.
