The S&P 500 (SNPINDEX: ^GSPC) has advanced 27% year to date due to enthusiasm about artificial intelligence, and the “Magnificent Seven” stocks have contributed more than half of those gains. The hedge fund billionaires listed below bought shares of the Invesco QQQ Trust (QQQ -0.65%) during the third quarter, a supercharged index fund that offers heavy exposure to those seven stocks.
- Paul Tudor Jones of Tudor Investment purchased 98,531 shares of the Invesco QQQ Trust, opening a new position. The index fund ranks among his top 20 holdings, excluding options contracts.
- Cliff Asness of AQR Capital Management bought 26,970 shares of the Invesco QQQ Trust, more than tripling his stake in the index fund.
- Israel Englander of Millennium Management bought 198,064 shares of the Invesco QQQ Trust, more than tripling his stake in the index fund.
Investors should never buy or sell a security simply because someone else did. Instead, they should always formulate an investment thesis before putting money into the market. Read on to learn more about the Invesco QQQ Trust.
The Invesco QQQ Trust is heavily invested in the Magnificent Seven stocks
The Invesco QQQ Trust measures the performance of the Nasdaq-100, an index that tracks the 100 largest non-financial companies on the Nasdaq Stock Exchange. The index fund is heavily invested in the information technology sector, and the Magnificent Seven stocks account for 45% of its weighted exposure.
The 10 largest holdings in the Invesco QQQ Trust are listed by weight below:
- Apple: 8.9%
- Nvidia: 7.8%
- Microsoft: 7.8%
- Amazon: 5.6%
- Meta Platforms: 5.1%
- Alphabet: 5.1%
- Broadcom: 4.9%
- Tesla: 4.6%
- Costco Wholesale: 2.7%
- Netflix: 2.4%
The Magnificent Seven are some of the most profitable businesses in the world. In aggregate, those seven companies reported a net profit margin of 23.5% in the most recent quarter. Comparatively, the other 493 companies in the S&P 500 reported a net profit margin of 9.2%.
Additionally, the Magnificent Seven are expected to report earnings growth of 36% this year and 21% next year. Comparatively, the other 493 companies in the S&P 500 are expected to report earnings growth of 3% this year and 13% next year. In short, while the Magnificent Seven command pricey valuations, they are also growing much faster than the average S&P 500 company.
Going forward, the Invesco QQQ Trust provides exposure to several important technologies that could create significant wealth for investors. That includes artificial intelligence, cloud computing, autonomous robots and vehicles, and quantum computing.
The Invesco QQQ Trust generated supercharged returns over the last decade
The S&P 500 is generally viewed as the best benchmark for the overall U.S. stock market due to its scope and diversity. The Invesco QQQ Trust has outperformed that benchmark during the last one year, three years, and five years. More impressive, the Invesco QQQ Trust doubled the return of the S&P 500 in the last decade , and tripled its return in the last two decades. as shown in the chart below.
|
Time Period |
Invesco QQQ Trust Return |
S&P 500 Return |
|---|---|---|
|
1 Year |
35% |
32% |
|
3 Years |
33% |
29% |
|
5 Years |
160% |
94% |
|
10 Years |
412% |
200% |
|
20 Years |
1,230% |
412% |
Data source: YCharts. Returns shown are current as of December 11, 2024.
The downside of the Invesco QQQ Trust is volatility. The index fund has a three-year beta of 1.18, meaning it moved 118 basis points (1.18 percentage points) for every 100-basis-point movement in the S&P 500. That means good days tend to be better, but it also means bad days tend to be worse.
Consequently, the Invesco QQQ Trust would likely fall much more sharply than the S&P 500 during a stock market crash. Indeed, the S&P 500 declined 25% during the bear market that began in January 2022, but the Invesco QQQ Trust declined 36%.
The last item of consequence is the expense ratio. The Invesco QQQ Trust has an expense ratio of 0.2%, meaning investors will pay $20 per year on every $10,000 invested in the fund. That is below the industry average of 0.36%, according to Morningstar.
Here is the bottom line: Past performance is never a guarantee of future results, but the Invesco QQQ Trust has been a brilliant long-term investment. The fund has consistently outerperformed the S&P 500, and I think patient investors will see more of the same in the next decade. I see the catalyst for that outperformance as the growing popularity of artificial intelligence, robotics, and other technologies.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon, Nvidia, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Costco Wholesale, Meta Platforms, Microsoft, Netflix, Nvidia, and Tesla. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
