Analyst Report

The Invesco NASDAQ 100 ETF (QQQM) tracks the top 100 largest non-financial
companies listed on the Nasdaq. If that sounds familiar, it should: QQQM is virtually
identical to Invesco’s QQQ Trust (QQQ), one of the oldest, largest and most-traded
ETFs on the market.

So why would Invesco launch a twibling? The short answer: Invesco designed the new
QQQM to appeal to buy-and-hold investors, while traders and institutional buyers may
prefer to stick with the original QQQ.

Let’s explain. For starters, the new fund is cheaper. QQQM (affectionately known as the
Q mini) has a lower management fee. Shares of the Q mini are also a fraction of the
value of QQQ, putting the mini within reach of small savers who might balk at QQQ’s
price tag.

So why didn’t Invesco just cut the price of QQQ? There are several reasons. Many older
funds like QQQ, which launched in 1999, were structured as trusts. Trusts, unlike many
other equity ETFs, can’t lend out the stocks in their portfolio, and use the revenue to
help offset fees. They also can’t reinvest dividends, which many buy-and-hold savers
prefer. The Q mini can do both.

Invesco is not the only ETF firm to introduce newbie versions of older, pricier funds.
State Street did the same thing with SPLG, a buy-and-hold version of SPY, the oldest
and largest ETF in the world. And BlackRock’s iShares successfully pioneered the
concept with its Core series, which offered cheaper versions of legacy iShares ETFs.
This way, ETF issuers can appeal to all comers — better to cannibalize your own funds
with in-house rivals than watch a competitor eat your market share.

Does that mean QQQM is meant to replace QQQ? That depends on the investor. For
the buy-and-hold saver, the mini-Q is likely the more appealing option: lower fees,
smaller share price, reinvested dividends. But big institutional investors and high-speed
firms will likely stick with QQQ, at least for now; the larger size makes QQQ cheaper to
trade, and the QQQ has a sizable lead when it comes to liquidity.