QQQ is bleeding assets, but are ETF investors ‘finally bailing’ on growth stocks just as tech stocks jump in 2023?

Technology and growth stocks are off to a strong start in 2023, but a popular exchange-traded fund isn’t getting much love lately. 

The Invesco QQQ Trust
QQQ,
+1.95%,
an ETF tracking the tech-laden Nasdaq-100 index, has seen $5.7 billion of outflows this year, according to a Strategas research note dated Jan. 24. And over the last two months, the fund has bled around $12 billion, which Strategas ETF strategist Todd Sohn described in the note as “a record” and questioned whether investors are “finally bailing on growth-oriented areas” of the stock market. 

That might not be the case, according to Ryan McCormack, a senior factor and core ETF strategist at Invesco. 

“The flow picture doesn’t necessarily tell the story of the long-only investor,” said McCormack, in a phone interview. “For that, we look toward QQQM,” which has seen inflows so far this year, he said.

The Invesco Nasdaq 100 ETF
QQQM,
+1.94%,
which trades under the ticker QQQM, was launched in October 2020. Like QQQ, it provides exposure to the Nasdaq 100, but it’s five basis points cheaper — a 25% expense ratio reduction — and caters to longer-term, “buy-and-hold” investors, said McCormack. 

QQQM has an expense ratio of 0.15%, while the much larger, actively-traded QQQ charges 0.20%. 

The Invesco QQQ Trust, launched in 1999, is one of the most actively-traded ETFs in the world, according to FactSet. The fund has around $152 billion of assets under management, dwarfing QQQM’s $6 billion on Wednesday, FactSet data show. 

The “long-only, retail-driven, buy-and-hold community have largely gravitated toward QQQM, McCormack said. “We’ve seen pretty consistent inflows there since launch.”

The ETF has attracted about $3.3 billion over the past year, while QQQ saw around $654 million of inflows over the same period, according to McCormack. 

Flows for QQQ can be pretty “pretty streaky,” he said, with “tremendous” inflows or outflows in a given day. Institutional investors may use QQQ as just one of their trading tools to gain exposure to the Nasdaq 100, an index heavy in tech and growth stocks, said McCormack. They might also turn to options trading to manage their exposure to the index, he said.

Tech-laden Nasdaq pulls ahead of S&P 500

Both QQQ and QQQM were up slightly more than 8% this year through Wednesday, after sinking around 33% last year, FactSet data show. Their performance in 2023 tops the S&P 500
SPX,
+1.10%
and the SPDR S&P 500 ETF Trust
SPY,
+1.10%,
but that’s also after suffering steeper losses in 2022.

As for flows this year, QQQ has seen $4.9 billion of outflows this year through Wednesday, while QQQM has seen almost $156 million of inflows, according to FactSet data.

Among their top holdings are Apple Inc.
AAPL,
+1.48%,
Microsoft Corp.
MSFT,
+3.07%,
Amazon.com Inc., Nvidia Corp.
NVDA,
+2.48%,
Google parent Alphabet Inc., Tesla Inc.
TSLA,
+10.97%
and Facebook parent Meta Platforms Inc.
META,
+4.10%,
FactSet data show. 

Next week, Meta, Apple, Amazon
AMZN,
+2.10%
and Alphabet
GOOGL,
+2.42%
will report their quarterly results as earnings season for the fourth quarter continues.

“This round of earnings reports will be quite telling,” McCormack. Amid concerns about a slowing U.S. economy, “investors want to hear what’s going on at the company level.”

Last year was a “supremely challenging environment for growth stocks,” as the Federal Reserve aggressively hiked interest rates to combat high inflation, said McCormack. Investors are trying to be as “forward-looking” as they can, potentially weighing the relative value of the Nasdaq 100 index while “looking to position beyond the economic slowdown.”

The Fed’s next policy meeting is scheduled for Jan. 31 – Feb. 1.

As usual, here’s your look at the top- and bottom-performing ETFs over the past week through Wednesday, according to FactSet data.

The good…

…and the bad

New ETFs

• Fidelity has launched the Fidelity Tactical Bond ETF
  FTBD,
  -0.08%,
  a fund that has flexibility to invest across debt markets, including investment-grade, high-yield, and emerging market bonds.

• The Goldman Sachs Defensive Equity ETF
  GDEF,
  +0.06%,
  which provides exposure to U.S. large-cap equities with a defensive investment approach using options, has begun trading this week. This is Goldman Sachs Asset Management’s first mutual fund to convert to an ETF, according to a person familiar with the matter.

Weekly ETF reads