QQQE: It's Time To Equal-Weight The Nasdaq-100

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Massimo Giachetti

Investment Thesis

As mega-cap maturation stocks slow springiness backmost immoderate awesome year-to-date gains, I want readers to see nan Direxion NASDAQ-100 Equal Weighted ETF (NASDAQ:QQQE) arsenic an replacement to nan much celebrated Invesco QQQ ETF (QQQ). QQQE trades astatine a cheaper valuation, has a three-point separator connected maturation and has stronger net momentum. It's besides prudent to dispersed consequence successful uncertain markets, arsenic Q4 2022 net results bespeak astir mega-cap stocks aren't retired of nan woods yet. This article compares nan 2 ETFs' existent fundamentals and humanities performance, followed by an update connected really good Nasdaq-100 constituents are handling nan existent net season.

QQQE Overview

QQQE tracks nan NASDAQ-100 Equal Weighted Index, selecting 100 of nan largest non-financial companies listed connected nan Nasdaq based connected marketplace capitalization. Based connected humanities capacity alone, semipermanent investors will apt take nan cheaper market-cap-weighted QQQ. QQQ has a much reasonable disbursal ratio (0.20% vs. 0.35%) and has outperformed QQQE by astir 3% per twelvemonth complete nan past 10 years. That equates to astir 106% successful full return.

QQQE vs. QQQ Performance Comparison

Portfolio Visualizer

However, QQQE improved past year, declining 9.14% compared to 18.25% from February 2022 to January 2023. QQQE besides performed astir each different large-cap maturation ETFs successful nan erstwhile year. The pursuing is simply a capacity summary alongside 29 peers done January 2023. QQQE classed #3 down nan Invesco S&P 500 GARP ETF (SPGP) and nan First Trust Large Cap Growth AlphaDEX ETF (FTC).

Large-cap maturation ETF Performance Comparisons

The Sunday Investor

Historical capacity is sometimes helpful, but those relying connected it apt avoided QQQE 1 twelvemonth ago. Current fundamentals matter much because they bespeak what you ain aliases scheme to ain today. With that said, let's look astatine nan fund's creation coming astatine nan assemblage level.

SPY vs. QQQ vs. QQQE Sector Exposures


QQQE has 11% little vulnerability to Technology stocks than QQQ but is still overweight by 12% compared to nan SPDR S&P 500 ETF (SPY). Another quality is higher Health Care vulnerability (12.48% vs. 6.38%) while underweighting Communication Services stocks by nan aforesaid amount. Otherwise, location are only insignificant differences from this perspective.

QQQE Analysis

Industry Fundamentals vs. QQQ

The pursuing array highlights selected basal metrics for QQQE's apical 25 industries. This position is beneficial since it's challenging to admit nan creation of a money by scanning done 100 securities. Semiconductors is nan starring manufacture pinch a 12.68% full weighting compared to 13.52% successful QQQ. Systems Software stocks harvester for 7.24%, little than half nan vulnerability successful QQQ, whereas Microsoft (MSFT) has a 12.11% weighting. Finally, Apple (AAPL) and its 12.23% weighting successful QQQ is reduced to 1.03% successful QQQE. The fund's comparatively debased $155 cardinal weighted-average marketplace capitalization reflects this activity from nan mega-caps.

QQQE vs. QQQ vs. SPY Fundamentals

The Sunday Investor

Three observations:

1. QQQE's 1.08 five-year beta indicates little marketplace volatility than QQQ. This metric aligns pinch humanities volatility and drawdown figures, per below.

QQQE vs. QQQ Risk and Return Statistics

Portfolio Visualizer

2. QQQE's estimated gross and net maturation rates are astir 13.5%, 2.5%-3.5% higher than QQQ's. Interestingly, QQQ's 9.85% net maturation complaint is hardly amended than SPY. To understand why, see nan maturation rates for QQQ's apical 10 holdings, which full 47% of nan portfolio.

QQQ Top 5 Holdings - Growth Metrics

Seeking Alpha

Notice really only NVIDIA (NVDA) has an estimated net maturation complaint exceeding 20%. In each cases, estimated income maturation is little than annualized rates complete nan past 3 and 5 years. Investors shouldn't trust connected humanities capacity to make finance decisions. Markets are forward-looking, and they bespeak QQQ has nary much maturation than SPY. Better opportunities are pinch lesser-known companies, to which QQQE has much exposure.

3. Better maturation opportunities usually travel pinch sacrifices. With worth ETFs, it's typically higher volatility. With maturation ETFs, nan trade-off often manifests successful much costly valuations aliases weaker profitability scores. QQQE's 9.02/10 Profitability Score is worse than QQQ's 9.74/10 Score. However, some are acceptable and suggestive of high-quality holdings. Importantly, QQQE trades astatine 28.92x guardant earnings, astir 1 constituent little than QQQ. This was not nan lawsuit 2 months ago. My records bespeak that QQQE traded astatine a 1.4-point premium for nan week ending December 16, 2022, pinch only a 2% separator connected estimated net growth. In short, QQQE's fundamentals person improved.

Q4 2022 Earnings Season

You whitethorn person noticed QQQE's superior 5.45/10 EPS Revision Score. This score, derived from Individual Seeking Alpha Factor Grades, has proved to beryllium a coagulated starring parameter arsenic it neatly summarizes Wall Street sentiment. Recently, I utilized it to identify an opportunity pinch nan Consumer Discretionary Select Sector SPDR ETF (XLY) up of net season. One period later, pinch astir two-thirds of S&P 500 companies reporting, Yardeni Research reports nan highest aggregate net astonishment for S&P 500 Consumer Discretionary stocks (10.2%).

Q4 2022 Earnings Surprises

Yardeni Research

QQQE's people isn't arsenic impressive, but it's still superior to QQQ's 4.16/10 and SPY's 4.75/10. The pursuing array highlights net results and surprises for nan past 25 securities to report.

QQQE Earnings Season Update - Q4 2022

The Sunday Investor

In this sample, nan median gross net astonishment was 1.77% and 6.11%. Crucially, nan median 6.92/10 EPS Revision Score is excellent, indicating that analysts person mostly increased. In contrast, present are nan EPS Revision Grades for QQQE's 5 astir underweighted securities compared to QQQ:

  1. Apple: 2.31/10
  2. Microsoft: 1.54/10
  3. Alphabet (GOOG) (GOOGL): 3.85/10
  4. Amazon (AMZN): 3.85/10
  5. Tesla (TSLA): 1.00/10

Seeking Alpha provides nan number of analysts' upward and downward income and net revisions complete nan past 90 days to support these scores. Based connected these figures, QQQ feels for illustration a contrarian play correct now. I for illustration to dispersed retired nan consequence and prime much companies that Wall Street favors.

Seeking Alpha EPS Revision Scores - AAPL, MSFT, GOOGL, AMZN, TSLA

Seeking Alpha

Investment Recommendation

In my hunt for maturation opportunities, QQQE is 1 of nan fewer standouts. I for illustration its superior operation of maturation and valuation compared to QQQ. Its equal-weighted attack provides for amended diversification, and nan Index's lesser-known stocks look to person stronger net momentum backed by amended quarterly results. Therefore, I support buying QQQE to re-enter maturation stocks cautiously and person assigned a bargain standing to nan ETF. Thank you for reading, and I look guardant to nan chat below.

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