Why QQQ Isn't For Y-O-U

QQQ, the fund based on the Nasdaq 100 Index, is the consensus investment for "tech exposure." However, it has flaws that no one is talking about. Given its popularity ($97bill in inflows over the last 12 months) it is important to understand how this fund works.

Here are some things to consider when investing in QQQ:

1) Poor Diversification - Tech makes up over half of QQQ, and the top 3 sectors are 82% of the holdings combined. This has allowed the fund to outperform in recent years, but a downturn in tech will drag on performance. There are other large cap growth funds available with tech exposure and better diversification.

2) Arbitrary Inclusion - The only requirement for stocks to be in QQQ is that they are listed on the Nasdaq 100 stock exchange. This excludes some large tech companies like Salesforce, Oracle, Uber, and Block, as those are listed on the NYSE.

3) Rich Valuations - The relative value of the stocks in QQQ can be pricey when compared to the broad market. While we do not advise using metrics like P/E ratios as a market timing indicator, investors should be aware of their investments historical relative value.

So, is QQQ the right fit for Y-O-U? Depends on what your investment goals are.

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