Advisors and experienced investors are familiar with the Nasdaq-100 Index (NDX), which is a collection of the 100 largest non-financial services companies trading on the Nasdaq. Accentuating awareness of the gauge, the tech-heavy NDX has a long-running history of outperforming other broad market benchmarks.
NDX’s track record and investors’ thirst for efficient access to a basket of high-octane large-cap growth stocks has translated into success for the Invesco QQQ ETF (QQQ) and the Nasdaq 100 ETF (QQQM), both of which track NDX. QQQ is one of the largest ETFs in the world and the lower cost QQQM is no shrinking violet. Combined, these two ETFs have approximately $445 billion in assets under management.
Sure, there are some successful equal-weight spins on NDX, but when it comes to the intersection of the cap-weighted version of this index and ETFs, Invesco has long been the dominant name, particularly in the U.S.
It’s possible that grip could loosen because iShares parent BlackRock filed plans for the iShares Nasdaq 100 ETF, which trade under the ticker “IQQ.”
Does It Matter to Advisors, Clients?
Answering the above question is easy because it’s a resounding “maybe.” For the advisors and investors out there that are ETF and index industry “nerds,” more competition among NDX-tracking products is, at a minimum, interesting. Indeed, BlackRock is a formidable foe for any other ETF sponsor.
Still, IQQ isn’t going to be noticeably different than QQQ and QQQM unless the iShares ETF undercuts its Invesco rivals on fees. Specifically, the iShares Nasdaq 100 tracker likely needs to charge less than the 0.15% yearly expense ratio found on QQQM in an effort to gain traction. As it stands at this writing, the BlackRock regulatory filing for the proposed ETF doesn’t include an expense ratio.
It’s tough to speculate as to what IQQ’s annual fee will be, but for cost-conscious, tax-aware retail investors currently holding Invesco’s QQQM, the new competitor had better be significantly cheaper to compel them to take the capital gains (assuming their positions are profitable) hits to move out of QQQM just to save a few basis points.
Who Wins?
The ultra-competitive ETF realm often generates clear winners and losers. In the NDX ETF competition, it remains to be seen if iShares is a winner and if Invesco will be a loser.
Advisors and clients may be winners if IQQ comes to market with a noticeably lower fee than QQQM. As for other winners, those may include Nasdaq (NDAQ) and its shareholders.
“Expanding access to the Nasdaq-100® is intended to be additive, supporting investors by improving the efficiency, liquidity, and availability of benchmark-linked exposure across markets and product types,” according to the exchange operator and index provider. “As demand for Nasdaq-100® exposure continues to grow globally, Nasdaq is focused on extending international reach and deepening institutional access by working with a select set of partners in key markets. Nasdaq maintains a valuable, longstanding partnership with Invesco and remains committed to supporting the continued strength and success of the Invesco QQQ Innovation Suite as a cornerstone of the Nasdaq-100® ecosystem.”
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