The PowerShares QQQ Trust, Series 1 (ETF) (QQQ) is usually thought of as the technology index relative to its compatriots, the Dow Jones Industrial Average and the S&P 500.
But it’s not as tech as you might think, and that’s a very good thing right now.
Even at its inception in 1985, Nasdaq was split into two indices — one comprising tech and various other companies and one that focused on financials.
Nowadays, Nasdaq is known more for its tech exposure, as well as its lack of any financial or investment firms. And when investing in this index, the best way to do it is with PowerShares QQQ.
Nasdaq Set for a Big 2016?
Nasdaq is a capitalization weighted index, meaning it determines the stocks in the 100 by market capitalization. The size of the market cap also determines what weighting a stock gets in the index. For example, companies like Microsoft Corporation (MSFT) and Apple Inc. (AAPL) have huge market caps, so their stocks make up more of the index than smaller companies. AAPL has an 11% weighting and MSFT has an 8% weighting.
Those weightings are significant. Because of their size, the top ten holdings make up a little more than 50% of the weighting in the index. The other 90 stocks make up the rest. That means, the top 10 are the ones that are driving QQQ. Because the index is only adjusted once a year in December, these weightings are here for the year the next eight months. And virtually all of the top 10 stocks are tech or biotech, with one telecom, Comcast Corporation (CMCSA). This is how QQQ became linked to the tech sector.
But even some of its tech firms are now exploring markets beyond the internet. Amazon.com, Inc. (AMZN) is now selling groceries and consumer goods, and it has a traditional publishing arm as well.
Consumer goods and services actually make up 28% of QQQ, and much of that is more Costco Wholesale Corporation (COST), Kraft Heinz Co (KHC), Walgreens Boots Alliance Inc (WBA) and Mondelez International Inc (MDLZ) than it is Netflix, Inc. (NFLX) or eBay Inc (EBAY).
Certainly, many of QQQ’s top 10 should perform well, which will mean a great deal to the index, but its broad representation beyond tech will come in handy for the rest of the year.
Everyone is predicting slow growth for 2016, and that means you have to have exposure to slow and steady growers. When it’s their time, investors will flock to them and drive their prices (and market caps) even higher — a boon for the PowerShares QQQ Nasdaq exchange-traded fund.
One thing to bear in mind, the Nasdaq ETF has a lot more volatility than the DJIA or the S&P 500. Don’t expect a one-way ticket to the moon. QQQ will continue to bounce around as investors rush between risk-on and risk-off investing.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.