Is QQQ a leveraged ETF?
The largest ETF in the leveraged space, the ProShares UltraPro QQQ aims to track the daily performance of the Nasdaq Composite with three times leverage.
Invesco QQQ is an exchange-traded fund (ETF) that features Apple, Google, Microsoft, and more. Invesco QQQ ETF tracks the Nasdaq-100® Index — giving you access to the performance of the 100 largest non-financial companies listed on the Nasdaq. The fund and the index are rebalanced quarterly and reconstituted annually.
QQQ and TQQQ are both ETFs that track the Nasdaq-100 Index. QQQ tracks the Nasdaq-100 Index passively, while TQQQ is highly levered.
ProShares UltraPro QQQ is the most popular and liquid ETF in the leveraged space, with AUM of $21.9 billion and an average daily volume of 67.3 million shares a day. The fund seeks to deliver three times the return of the daily performance of the NASDAQ-100 Index, charging investors 0.88% in annual fees.
The Leverage Shares 5x Long US Tech 100 ETP Securities is designed to provide 5x the daily return of Invesco QQQ Trust (QQQ) stock, adjusted to reflect the fees and costs of maintaining a leveraged position in the stock.
Vanguard offers the VOO ETF, while Invesco offers QQQ. VOO tracks the S&P 500, and QQQ tracks the Nasdaq-100. Investing in QQQ is riskier, but it comes with the potential for higher rewards since this fund invests heavily in tech-related stocks, which are prone to rapid growth during a bull run.
In the past year, QQQ returned a total of 30.97%, which is significantly higher than VOO's 21.42% return. Over the past 10 years, QQQ has had annualized average returns of 17.90% , compared to 12.29% for VOO. These numbers are adjusted for stock splits and include dividends.
A leveraged exchange-traded fund (LETF) uses financial derivatives and debt to amplify the returns of an underlying index, stock, specific bonds, or currencies. While a traditional ETF typically tracks the securities in its underlying index on a one-to-one basis, a LETF may aim for a 2:1 or 3:1 ratio.
TQQQ vs QQQ performance
Historically, TQQQ has outperformed QQQ. For example, in the past five years, the TQQQ ETF has risen by more than 457% while QQQ has jumped by 174% in the same period. Take note that TQQQ's total returns did were not 522% (or 174×3).
What Does It Mean When an ETF Is Leveraged 3x? An ETF that is leveraged 3x seeks to return three times the return of the index or other benchmark that it tracks. A 3x S&P 500 index ETF, for instance, would return +3% if the S&P rose by 1%.
What is the oldest 3x leveraged ETF?
Direxion launched its first leveraged ETFs in 2008. In November 2008 the company was the first to offer ETFs with 3X leverage, a move that was copied some months later by its competitors ProShares and Rydex Investments.
The largest Leveraged ETF is the Direxion Daily Semiconductor Bull 3X Shares SOXL with $10.23B in assets. In the last trailing year, the best-performing Leveraged ETF was NVDL at 427.37%. The most recent ETF launched in the Leveraged space was the ProShares Ultra Bitcoin ETF BITU on 04/02/24.
The Direxion Daily Junior Gold Miners Index Bull 3x Shares (JNUG) and the Direxion Daily Junior Gold Miners Index Bear 3x Shares (JDST) are the two most volatile exchange-traded funds of all. Each has a one-year volatility reading of about 170.
Because they rebalance daily, leveraged ETFs usually never lose all of their value. They can, however, fall toward zero over time. If a leveraged ETF approaches zero, its manager typically liquidates its assets and pays out all remaining holders in cash.
The ProShares Short QQQ (PSQ) returns the inverse of the index on a one-to-one basis. The ProShares UltraShort QQQ (QID) is a 2x inverse ETF, and the ProShares UltraPro UltraShort QQQ (SQQQ) is a 3x inverse ETF.
Nearly all leveraged ETFs come with a prominent warning in their prospectus: they are not designed for long-term holding. The combination of leverage, market volatility, and an unfavorable sequence of returns can lead to disastrous outcomes.
For investors seeking an alternative to QQQ's mega-cap exposure, the Invesco S&P 500 Top 50 ETF (XLG) is an excellent option. XLG tracks the S&P 500 Top 50 Index, which, like QQQ, is heavily weighted towards top-tier tech and consumer stocks.
QQQ is better to buy for investments of a year or more. The NASDAQ-100 index dynamics are more volatile compared to the S&P 500. With a shorter investment horizon, there's a high risk of a decrease in value.
QQQ Dividend Information
QQQ has a dividend yield of 0.64% and paid $2.64 per share in the past year. The dividend is paid every three months and the last ex-dividend date was Mar 18, 2024.
The number one biggest problem with Invesco QQQ Trust is that a small number of stocks make up a large percentage of the fund. That's not the fund's fault, it is simply tracking the index. But you can't ignore this lack of diversification.
Does QQQ outperform S&P?
Invesco QQQ — the ETF that tracks the Nasdaq-100 index — has beaten the S&P 500 nine out of the last 10 years. Source: Morningstar Inc.
QQQ and VOO Holdings Overlap
If we compare QQQ and VOO by the top 10 companies, 8 of them will match. The correlation between stock prices of QQQ and VOO is 0.89. This is considered to be a high indicator.
Leveraged ETFs decay due to the compounding effect of daily returns, volatility of the market and the cost of leverage. The volatility drag of leveraged ETFs means that losses in the ETF can be magnified over time and they are not suitable for long-term investments.
The single biggest risk in ETFs is market risk.
These risky investments are meant to be used as short-term trading tools. They're not intended for buy-and-hold investing. On January 22, 2019, Vanguard stopped accepting purchases in leveraged and inverse ETFs, as well as leveraged and inverse mutual funds and ETNs (exchange-traded notes).
