The Invesco QQQ Trust (NASDAQ:QQQ) ETF looks like a mixed bag at this point. Some of its top holdings should perform very well in the coming weeks and months, while others are likely to struggle. Therefore, I believe that investors should avoid the QQQ ETF at this point.
To be sure, the ETF has some very good components. Two of the exchange-traded fund’s top holdings —Microsoft (NASDAQ:MSFT) which accounts for 10.7% of its assets and Amazon (NASDAQ:AMZN) which is 8.14% of its assets — should perform pretty well going forward. The companies are the leaders of the cloud transition.
The fund tracks the Nasdaq-100 index, which includes 100 of the largest domestic and international non-financial companies listed on the Nasdaq exchange, based on market cap.
As I’ve noted previously, multiple analysts have said that firms are unlikely to stop transitioning to the cloud. That’s because the change is core to their IT strategies and it’s expected to occur over a period of many years, making it unlikely to be derailed by the relatively short-term outbreak of the coronavirus from China. And of course, Amazon’s results will be boosted tremendously by the ongoing e-commerce surge that’s occurring amid the coronavirus.
Also likely to get a boost from the pandemic are Netflix (NASDAQ:NFLX), which accounts for nearly 2% of the ETF’s assets, and PayPal (NASDAQ:PYPL), with a weighting of about 1.5%. Netflix should benefit from increased subscriptions as quarantined people around the world look for more TV options, while PayPal should be helped by the increased utilization of e-commerce. Yet…
QQQ ETF Has Some Real Duds
With its very expensive products and its high leverage to Chinese consumers who are angry at Americans, Apple (NASDAQ:AAPL) is not a good stock to own now. It accounts for 11.6% of the ETF’s assets. Comcast (NASDAQ:CMCSA) and Charter (NASDAQ:CHTR) — huge cable companies that make up 2.1% and 1.2% of the ETF’s assets, respectively — are being disrupted by cord cutting. As I’ve written in the past, cable companies’ one remaining strong business — providing internet broadband — could be totally decimated by Elon Musk’s SpaceX which is looking to provide fast internet with satellites. Finally, Facebook (NASDAQ:FB), 4.25% of the ETF’s holdings, has massive regulatory problems and has been badly hurt by a change that Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) made to Chrome’s privacy standards. Further, Facebook’s ad business will be negatively affected by the recession.
Two Much-Better ETFs to Buy
The Global X E-commerce ETF (NASDAQ:EBIZ) “focuses on companies positioned to benefit from the increased adoption of e-commerce as a distribution model,” according to the fund’s sponsor. Among the portfolio’s largest components are e-commerce website Etsy (NASDAQ:ETSY), Canada’s Shopify (NASDAQ:SHOP) which enables small businesses to easily launch e-commerce websites and up-and-coming Chinese e-commerce company JD.com (NASDAQ:JD). Not surprisingly, the ETF has outperformed tremendously during the coronavirus crisis; it’s little changed since March 12. As hundreds of millions of people globally continue to stay at home much more than before the outbreak, the ETF’s outperformance is likely to continue in the coming days and weeks.
Another good fund to buy at this point is the Kraneshares CSI China Internet (NYSEArca:KWEB). China is reporting that it has almost no new cases of coronavirus brought about by contagion within the country, i.e., community spread. Meanwhile, signs continue to mount that the country’s economy is rebounding. Among the ETF’s largest holdings are several companies likely to benefit from increased e-commerce, including giants Alibaba (NYSE:BABA) and Tencent (OTC:TCEHY), along with JD.com. iQIYI (NASDAQ:IQ), the company that has been called “the Netflix of China,” and video game maker NetEase (NASDAQ:NTES), two other companies that should benefit from the stay-at-home trend, are also among the fund’s largest holdings.
The Global X E-Commerce ETF and Kraneshares CSI China Internet have much more exposure to strong, positive trends than the QQQ ETF.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer. As of this writing, Larry Ramer did not own shares of any of the aforementioned companies.