What it means
An exchange-traded fund, or ETF, is an investment that holds a basket of assets and trades on a stock exchange like an individual share. The QQQ fund aims to follow the performance of the Nasdaq-100 Index, so its value rises and falls with those 100 companies.
Investors use it to gain broad exposure without choosing individual shares. The index includes many well-known technology, communications and consumer businesses.
It excludes financial companies such as banks and insurers. Because the index weights companies by size, the largest companies have the biggest influence on its movements.
QQQ is popular with long-term investors, who treat it as a low-cost way of owning growth companies. It is also popular with traders, because it is very liquid, meaning large amounts can be bought and sold easily at fair prices.
Options on the fund are also widely traded, and traders use them to hedge or speculate. Like any ETF, QQQ has an expense ratio, a small annual fee charged as a percentage of the assets.
It also has a net asset value, or NAV, which is the value of its holdings per share. The market price normally stays very close to the NAV because large institutions can create or redeem shares when the two drift apart.
The risks follow from the index. A concentration in technology and in a handful of very large companies means the fund can fall sharply when that part of the market falls.
It is less diversified than a fund covering the entire stock market, so it suits investors who understand and accept that exposure. A nuance is that the name and the structure of the fund have changed over the years, and the product is sometimes still called by older names.
The ticker has stayed the same, which is why people refer to it simply as QQQ. Anyone buying should read the current fund documents for the latest fee and structure details.
In practice
Real-world examples.
Example
A young professional wants to invest in technology-led growth but does not want to pick individual shares. She buys shares of QQQ each month. Her money is spread across 100 companies.
Example
A company treasurer with surplus cash decides to hold a small amount in QQQ as part of a long-term investment reserve. The board approves it within a policy that limits how much can be held in a single sector. The treasurer reviews it each quarter.
Example
An options trader expects the technology sector to be volatile and buys put options on QQQ as a hedge. Because the fund is highly liquid, the options trade with narrow price gaps. The hedge protects the trader's wider portfolio.
Formula
Calculation
NAV per share = (total assets - total liabilities) / shares outstanding
Premium or discount = (market price - NAV) / NAV x 100
Suppose a fund like QQQ has net assets of $60,000,000,000 after liabilities and 200,000,000 shares outstanding. NAV per share = 60,000,000,000 / 200,000,000 = $300. If the shares trade at $300.30, the premium is (300.30 - 300) / 300 x 100 = 0.10%. The tiny gap shows how closely an ETF price follows its NAV.Case study
Seen in the real world.
Lakeshore Family Office is an illustrative, fictional investor with $10,000,000 in a diversified portfolio. The head of investments decided to place $1,000,000 in a fund tracking the Nasdaq-100, using QQQ as the vehicle, for exposure to large growth companies.
In a strong year for technology, the position rose 25% to $1,250,000, a gain of $250,000. In the following year, technology shares fell and the position dropped 30%, to $875,000, a fall of $375,000. Because the position was only 10% of the portfolio, the effect on the total was a decline of 3.75%.
The illustrative lesson was that a concentrated fund can swing widely, so position size matters. The family office kept the allocation modest and rebalanced each year to stop it growing too large after strong years.
Watch out
Common mistakes.
- Believing QQQ covers the whole stock market, when it holds only 100 companies and excludes financial firms.
- Ignoring concentration risk, since a few very large companies make up a large share of the fund.
- Assuming the fund tracks the S&P 500, when it follows the Nasdaq-100, a different index.
Questions
People also ask.
What does QQQ track?
It tracks the Nasdaq-100 Index, which contains 100 of the largest non-financial companies listed on the Nasdaq exchange.
Is QQQ a share in a company?
No, it is an ETF that holds a basket of shares, so buying it is a way of owning a small slice of many companies at once.
Why does the price stay close to the NAV?
Large institutions can create or redeem shares, which lets them profit from any gap and pushes the price back towards the NAV.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%Related