Based on what people have said, I understood that QQQ-Equal-Weight is better than QQQ (cap
weight). But since QQEW inception (June 2006) it has had worse performance than QQQ.
Lower CAGR, higher STDEV, lower Sharpe and Sortino ratios…
I accept an EW portfolio having lower return, because it should also have lower risk. But QQEW and QQQE don’t.
When it comes down to it, SPY vs. RSP has the same problem in the same period (Jun 2006 to present), just not as strong Although longer term (Jun 1999 to now), RSP is better than SPY.
The advantage that I perceive for QQQE is not that the historical performance better or worse, it’s that it’s more diversified and predictable.
(and in any case I expect long run returns to be very very similar…good numbers ending now sometimes just mean something is currently expensive)
QQQ is totally dominated by a few firms. The top 2 names account for 21-22% of the fund, top four names are 37-38%.
If you can predict the futures of those few firms, buy them, don’t buy QQQ.
If you can’t predict those few that dominate it, don’t buy QQQ.
So who is it appropriate for? Nobody, as far as I can tell.
QQQE, by contrast, has its biggest allocation at 1%.
So it has vastly lower risk, since most true risk comes from company specific news.
(and even if you looked at a meaningless metric of risk based on price variability, QQQ has a
higher standard deviation of short term price returns–day, week, month etc–because of the concentration)
And the diversification means that it is not unreasonable to expect some modest degree of mean reversion in things like average real earnings, or valuation multiples.
That’s what makes it more predictable. One can make a guess as to what it might be worth, and what the forward returns might be.
(my estimate is that, at average valuations since about 2005 and on-trend earnings, it would be trading at about $59-64 right now…which it is, give or take.
And that value might be expected to rise at about inflation + 8%/year on trend.
So, my stab in the dark is that it’s reasonable expect four year returns of around inflation + 5.0%/year from the current price of $67: ~4.5% real price increase and ~0.5% dividends.
Looking out seven years, I’d pencil in inflation + 7.0%. The current very modest “high” valuation is less of an issue spread out over time.
There are lots of waffly assumptions in those metrics, but there is no equivalent estimate you could even attempt for QQQ.
The biggest case against QQQE, as far as I can tell, is that there are 4 Chinese/VIE tickers included.
So, for 4% of the allocation you don’t have such luxuries as ownership rights or audits.
Oh, and that FB is one of the holdings. Ick : )