The Case for QQQ Now

Although the Nasdaq is nearing the 5,000 mark and is within reach of its all-time high reached 15 years ago, the smart money won’t be betting against the momentum and strength of large-cap growth stocks anytime soon.

Is the stock market open today

But today’s market is not in the bubble territory of 2000, and we are now entering the late phase of the business cycle, where the economy is strong enough for the Fed to start tightening credit by raising interest rates.

In this phase, the big growth companies and consumer cyclicals tend to take the lead over small-cap stocks.

In other words, the very nature of the large-cap growth-oriented stocks is the momentum of growing earnings typical of economic conditions taking shape now. And the tech sector stocks of the Nasdaq stand to benefit from this momentum, even as it benefits from its own momentum as nears record highs.

So you’ll want a good fund that focuses on the biggest and best stocks with strong growth potential and a slant toward consumer cyclical stocks. And what is arguably the best fund for taking advantage of such economic and market conditions?

Why the QQQ ETF May Lead in the Final Leg of the Bull Market

If you want to super-charge your portfolio with a healthy dose of large-cap growth stocks and play the Nasdaq momentum, you can’t get much better than the PowerShares QQQ ETF (NASDAQ:QQQ).

The QQQ ETF is one of the most actively traded U.S. exchange-traded funds and is among the largest with more than $40 billion in assets. The leading sectors in the QQQ portfolio are technology, consumer cyclicals and healthcare.

QQQ tracks the cap-weighted Nasdaq-100 Index, which includes the 100 largest non-financial stocks in the Nasdaq Composite Index. Top holdings include tech names like Apple Inc (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG), along with solid bio-technology stocks like Gilead Sciences Inc (NASDAQ:GILD) and Biogen Idec Inc (NASDAQ:BIIB).

Looking back at the previous business cycle late phase and corresponding final leg of the bull market in 2007, QQQ beat 99% of other large-cap growth funds with a 19% gain, which smashed that of the S&P 500 Index, which was up 5.5% that year. And for investors wanting to hold QQQ for the long-term, its 10-year annualized returns also place it ahead of 99% of large growth category peers.

While short-term periods can find the QQQ ETF out of favor, the nightmare scenario of the tech bubble crash of 15 years ago will not repeat this time. At the peak of the exuberance, the Nasdaq was valued at more than 100 times forward earnings, compared with a more rational 20 times today, which is not that much more than that of the S&P 500’s forward price-to-earnings ratio of 17.5.

Therefore, the QQQ ETF can find a place today in a prudent investor’s portfolio, where short-term conditions may boost performance in kind and the long-term strength potential looks compelling.

As of this writing, Kent Thune did not hold a position in any of the aforementioned securities. Under no circumstances does this information represent a recommendation to buy or sell securities.

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