With the coronavirus from China having crossed a significant psychological threshold — there are now well over 100,000 cases worldwide — whatever panic that people exhibited earlier has now been magnified. As a result, the markets ended last week again on a sour note, and they are dropping harder on Monday.
However, I don’t view this as a negative, but rather an opportunity to get into quality exchange-traded funds like the Invesco QQQ ETF (NASDAQ:QQQ). For me, the QQQ ETF hits all the right notes.
Perhaps surprisingly to most people, this fund is very well balanced for the current crisis. As you may know, the unusual rules governing the QQQ ETF means that it is heavily levered toward the technology sector. While this segment is under fire right now from the outbreak, it also offers the most relevant exposure to the coming era which I have termed the Roaring 2020s.
As I will demonstrate below, all that the coronavirus is doing from a financial perspective is giving you a great opportunity in one of the most significant transitions in history. I suggest you take advantage of it.
Second, while the QQQ ETF is tech-heavy, it splits that exposure across various sub-segments, such as IT and communication services. Further, the fund has a healthy serving of healthcare names and consumer staples. If you see what’s going on with companies like Clorox (NYSE:CLX), you’ll quickly understand why I’m bullish.
Finally, ETFs represent a great way to advantage market discounts without the stress of acute exposure. If one of the companies within the fund’s holdings doesn’t pan out, you’ve got many others to mitigate the pain.
So, without any more delays, let’s discuss the three reasons to buy the QQQ ETF.
Megatrends, Not Diseases Rule the Markets
As my readers know from my many email alerts over the last few weeks, I consistently warned against panic. However, I predicted that the general public would fail to heed my pleas for calm.
The coronavirus hysteria is what scientists refer to as immediacy bias. That is, “People tend to perceive immediate emotions as more intense than previous emotions.” What many folks are not understanding while they bum-rush their local Costco (NASDAQ:COST) for food, water and toilet paper is that they’ve already survived similar epidemics in SARS and the swine flu.
But if we move the needle back some more, you’ll realize that America has a long history with deadly diseases.
Outbreaks of typhoid fever, the Spanish flu and diphtheria struck Americans in the first quarter of the last century. Additionally, polio claimed the lives of thousands between 1916 through 1955. Through that period, the U.S. endured parts of World War I, most of World War II and the Great Depression.
Yet the post-World War II era (despite polio being a pernicious threat) was a period of tremendous growth.
If that was too far back, consider the second measles outbreak that sparked between 1981 through 1991. According to Healthline.com, during this period, the annual death rate “fluctuated between 2,000 and 10,000 people.”
Do you know what the Dow Jones Industrial Average did over the same time frame? It jumped nearly 214% and that’s because diseases don’t rule the markets, megatrends do. And the Roaring 2020s may be the biggest one of them all. Thus, you don’t want to miss out on the QQQ ETF over a temporary headwind.
The QQQ ETF Is an Easy Dip to Sip
Although I’m a contrarian at heart, I don’t buy stocks simply because they’ve collapsed. Contrarianism isn’t about being stupid with your money. Instead, it’s about taking advantage of certain moments of collective irrationality, like now.
Before the coronavirus dominated every single headline, the QQQ ETF was storming the markets and taking no prisoners. Between January’s opening price and the closing session of Feb. 19, the fund gained over 10%. But once the virus spread outside China and into Europe and the Middle East, Wall Street overreacted.
Why? In my opinion, there’s no fundamental reason for this panic. If the QQQ ETF was good enough to buy at nearly $237 in the second half of February, it’s an easy pick today. Keep in mind that the only data point that changed was that more people got the coronavirus.
Well, in my book, that’s nothing new. No one argued that the virus wasn’t infectious. But so were the many diseases throughout history that I mentioned above. While the markets may have corrected briefly, they eventually continued their journey.
And that’s really what the QQQ ETF was signaling up until late February. Mass panicking is simply a temporary headwind that cannot indefinitely quarantine transformative innovations like artificial intelligence and the internet of things.
Big Discounts, Relevant Names
Finally, the individual holdings of the QQQ ETF are very compelling. Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) take up the top two slots, accounting for about 23% of the fund. Because of supply chain concerns, both names are on discount. Still, unless you envision a future where people won’t use their phones or play video games, the upside narrative is plenty healthy.
In third place is Amazon (NASDAQ:AMZN), accounting for 8.6% of the fund. Here, the same concept applies. E-commerce has consistently taken a greater share of the total U.S. retail pie. If you think that will suddenly change for the worse, the QQQ isn’t right for you. Otherwise, AMZN is a compelling buy. Further, Amazon through its streaming services offers a coping mechanism for those hunkering down at home.
I can say the same thing about Comcast (NASDAQ:CMCSA), which is one of the top-ten holdings. Whether through its traditional media services or its Xfinity streaming platform, Comcast is both a solid discount and in vogue.
Ultimately, the QQQ ETF comes down to stepping away from the fear mongering and seeing the bigger picture. As history demonstrates, no virus has had a material impact on our markets. Thus, what you really have is a discount you shouldn’t pass up.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA)and+1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
