I have posted before about my uneasiness that so much of the advance in the stock indexes is concentrated in only a few industries. This is bubble-type behavior where speculators crowd into a story.
There’s nothing like a visual representation to bring the story home. Over half the value of the NASDAQ 100 comes from only 7 stocks. These are all tech companies so the narrow base is vulnerable to anything that shocks this segment.
Wendy
And yet, QQQ has stomped QQQE (the equal weighted index) since inception, and for all measured periods: YTD +36 vs +17, 1Yr 29 vs 19, 5yr 116 vs 67, and max (2012) +436% vs 273%.
https://www.morningstar.com/etfs/xnas/qqqe/chart
Hawkwin
Why do I want more of the losers?
P.S.: QLD (Nasdaq 100x2) is up 1572% for the same measured period (2012).
Historically what is the concentration of QQQ over long periods of time? How many companies does it take to equal the 50% mark as the years go by? In other words, is this concentration somewhat new to QQQ or is it common?
Related, why not just own the top 50% of companies rather than that index?
Great question. Could not find the answer but I did find this:
The Nasdaq-100 is officially rebalanced once each year, on the 3rd Friday in December. Not surprisingly, that’s also when most new additions take place (Chart 3). However, index changes can happen during the year if a company is acquired or if securities fail the ‘Continued Eligibility Criteria,’ which includes becoming too small during the year. Historically around 10% of the companies rotate out of the Nasdaq-100 each year (although usually, these are the smaller companies, so the impact on turnover is lower).
Yes but…QQQ didn’t really start to outperform QQQE until about 2017. And starting about that time the P/E ratios of most of the big tech companies have gone up a lot. Might be QQQ has simply gotten more expensive.
QQQ’s percent in top 10 holdings is now about average and is trending lower the last 2 years.
QQQ percent of assets in top 10 holdings is now about 59%. Since 1996: minimum 47%, average 58%, maximum 72%. The 72% peak was in February 1999. A recent peak was 68% in December 2021.
| year | percent | sum | sum | |
|---|---|---|---|---|
| in top 10 | MarketCap | MarketCap | ||
| holdings | Date | top 100 [$M] | top 10 [$M] | |
| 1986 | 27% | 19860102 | 64,870 | 17,755 |
| 1987 | 29% | 19870102 | 73,013 | 21,334 |
| 1988 | 40% | 19880104 | 80,556 | 32,031 |
| 1989 | 39% | 19890103 | 90,292 | 35,116 |
| 1990 | 43% | 19900102 | 122,939 | 52,262 |
| 1991 | 40% | 19910102 | 113,577 | 45,930 |
| 1992 | 45% | 19920102 | 192,905 | 87,551 |
| 1993 | 47% | 19930104 | 216,788 | 101,659 |
| 1994 | 46% | 19940103 | 264,846 | 120,580 |
| 1995 | 48% | 19950103 | 279,104 | 133,932 |
| 1996 | 49% | 19960102 | 422,116 | 208,822 |
| 1997 | 57% | 19970102 | 592,548 | 335,590 |
| 1998 | 62% | 19980102 | 780,188 | 486,042 |
| 1999 | 69% | 19990104 | 1,554,717 | 1,073,179 |
| 2000 | 66% | 20000103 | 3,134,944 | 2,080,711 |
| 2001 | 54% | 20010102 | 2,237,756 | 1,216,129 |
| 2002 | 61% | 20020102 | 1,746,864 | 1,062,812 |
| 2003 | 65% | 20030102 | 1,202,377 | 786,586 |
| 2004 | 61% | 20040102 | 1,798,002 | 1,101,088 |
| 2005 | 57% | 20050103 | 1,922,817 | 1,094,002 |
| 2006 | 53% | 20060103 | 1,951,977 | 1,028,482 |
| 2007 | 53% | 20070103 | 2,109,683 | 1,126,730 |
| 2008 | 55% | 20080102 | 2,420,566 | 1,342,740 |
| 2009 | 55% | 20090102 | 1,465,299 | 803,053 |
| 2010 | 55% | 20100104 | 2,237,596 | 1,224,339 |
| 2011 | 53% | 20110103 | 2,528,903 | 1,335,632 |
| 2012 | 55% | 20120103 | 2,517,280 | 1,395,938 |
| 2013 | 53% | 20130102 | 3,124,163 | 1,658,162 |
| 2014 | 49% | 20140102 | 4,115,786 | 2,034,709 |
| 2015 | 51% | 20150102 | 5,103,355 | 2,612,656 |
| 2016 | 56% | 20160104 | 5,578,545 | 3,142,144 |
| 2017 | 56% | 20170103 | 5,886,777 | 3,318,537 |
| 2018 | 58% | 20180102 | 7,927,558 | 4,591,358 |
| 2019 | 59% | 20190102 | 7,846,350 | 4,646,061 |
| 2020 | 62% | 20200102 | 10,533,210 | 6,517,667 |
| 2021 | 63% | 20210104 | 15,667,050 | 9,944,502 |
| 2022 | 66% | 20220103 | 21,110,270 | 13,907,360 |
| 2023 | 60% | 20230103 | 13,935,680 | 8,348,061 |
While I don’t question Wendy’s concerns, I do wonder if there is something telling in these numbers.
Even when recession/ market collapse happened in 2000 and 2008, there doesn’t appear to be too much of a change in the concentration as posted on the table.
When things fall, everything falls…Some more than others…But many “pundits” seem to opine that the rotation into mega caps this time around was simply because these are cash cows. So, relative safety at times of cash crunch!
I’m not comfortable with the overlap between QQQ and SPY.
The 3 largest positions in QQQ: MSFT-13.24%, AAPL-12.27%, AMZN-6.72%
The 3 largest in SPY: AAPL-7.53%, MSFT-6.98%, AMZN-3.07%.
I have had a real nice run with NVDA ( 6.59% of QQQ, 2.66% of SPY ) and MSFT individual stocks, and also hold QQQ and SPY. I am selling down my individual holdings in NVDA and MSFT, as in combination with holding QQQ and SPY, that is too concentrated for me. Still thinking on if I want to stand pat with QQQ in combination with SPY.
I share the concern. I own AAPL, MSFT, AMZN, and GOOG (BRK too) separately from my index funds so I don’t need to own more. Those five stocks are about 35% of my portfolio.
So I hold QQQE instead of QQQ. As @Hawkwin points out, it has been underperforming QQQ the last several years, but I think you could make a reasonable argument it is a better value at the moment. Maybe not, but I’ve got about as much large cap tech as I want. In addition to VTSAX (total market), and I have good slug of VO (mid-cap) and some small cap as well. So I’m more like equal weight for the S&P as well, as far as index funds go.
It should be noted that mid-caps have been underperforming large caps in general lately, not in just in tech. So there is that.
It gets even more curious to compare over different periods. John Authers in a Bloomberg piece has a graphic which suggests the concentration for the S&P 500 may not be as bad as feared. The bottom 10 are also pulling their weight.
However it is a worry to see such large companies ( magnificent seven Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta) add almost trillions in market cap in 6 months !!
Mega large companies are not supposed to be gangbusters
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