Investors eyeing exposure to the tech sector through the Invesco QQQ Trust ETF (NASDAQ: QQQ) should consider alternative options that offer better value and diversification. While the QQQ ETF has delivered impressive returns in 2023, driven by a handful of mega-cap tech stocks, exploring other funds might present more compelling opportunities for market outperformance. Here are three alternatives worth considering:
- QQQ’s Less Expensive Sister:
- For investors committed to tracking the Nasdaq-100 index, the Invesco Nasdaq 100 ETF (NASDAQ: QQQM) offers a more cost-effective alternative. Launched in 2020, it adheres to the same trading rules as QQQ Trust but boasts a lower expense ratio of 0.15% compared to QQQ Trust’s 0.2%. This cost reduction enhances its appeal for buy-and-hold investors looking for efficiency in their investment strategy.
- Growth Stocks with Less Premium:
- Given the soaring valuations of major growth stocks, investors seeking better value may turn to small-cap growth stocks. The SPDR S&P 600 Small Cap Growth ETF (NYSEMKT: SLYG) trades at a forward P/E ratio of just 15.3, almost half the price of the Nasdaq-100. While small-cap stocks come with increased risk, their current underperformance in 2023 makes them potentially attractive. With an expense ratio of 0.15%, the SPDR ETF provides a cost-effective alternative to QQQ Trust.
- Consider Shifting to Value:
- Amidst the dominance of large-cap growth stocks, exploring value stocks could offer diversification. Small-cap value stocks historically yield robust long-term returns. The Avantis U.S. Small Cap Value ETF (NYSEMKT: AVUV) presents an actively managed option with a P/E ratio below 8 and an expense ratio of 0.25%. As the Federal Reserve signals potential rate cuts in 2024, small-cap value stocks might see improved performance. While fees are slightly higher than QQQ Trust, the Avantis fund provides diversification potential and the prospect of stronger long-term returns.
As investors evaluate their portfolios, diversifying away from the concentrated holdings of the Nasdaq-100 into alternatives such as small-cap growth, small-cap value, and cost-effective index funds can enhance resilience and potential returns. Each alternative offers a distinct strategy, allowing investors to tailor their approach based on risk tolerance and investment objectives.
