This Mini Version of the Nasdaq Is Leaving QQQ in the Dust

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This Mini Version of the Nasdaq Is Leaving QQQ in the Dust

Big cap technology stocks have struggled for months. But that’s not true for their smaller cousins.

The below compares the performance of the Invesco Nasdaq Next Gen ETF (QQQJ) with the Invesco QQQ (QQQ).

QQQ tracks the Nasdaq-100 index, so it holds the 100 largest companies on the Nasdaq stock market. It includes huge names like Apple (AAPL), Amazon.com (AMZN) and Microsoft (MSFT).

QQQJ holds 100 next largest companies. Big members include Trade Desk (TTD), Marvell Technologies (MRVL) and Roku (ROKU).

The combination of the presidential election and success of a coronavirus vaccine have created a huge wave of confidence in the market. Investors have responded by shifting to reopening stocks like energy and financials. But they haven’t completely forgotten about technology stocks. They’ve simply shifted to smaller companies — another sign of risk appetite.

Percent change chart comparing Invesco Nasdaq Next Gen ETF (QQQJ) vs the Invesco QQQ (QQQ) since mid-October.

There seem to be a few reasons. First, investors concentrated on “megacap” technology stocks like AAPL and AMZN in recent years. Second, merger activity has increased. This week’s acquisition of Slack (WORK) by Salesforce.com (CRM) is prime example because its $28 billion valuation fits in the size range of QQQJ’s members.

Tech IPOs Coming

Third, falling volatility draws investors back to individual stocks and away from large, correlated indexes. It’s the exact opposite of what happened in late February when the pandemic swept markets.

Finally, QQQJ’s outperformance comes at an interesting time because several new technology stocks are going public later this month. So far, we know Airbnb (ABNB) will price on Thursday, December 10. Its $35 valuation would probably land it somewhere between QQQ and QQQJ.

DoorDash (DASH) issues shares one day earlier on NYSE. Shopping-app operator Wish and robotics firm Roblox are also on the IPO list for later in the month.

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