QQQ vs QQQM – does it make sense to switch?

A few months ago, I questioned whether going all in on QQQ in our RRSPs makes sense. Thanks to engaging readers, the article created some very interesting discussions.

One of the questions that many readers asked was – Why are you investing in QQQ? Why not invest in QQQM instead? 

To be completely honest, I was surprised to see this question because I was only aware of QQQ. I didn’t know there was such an ETF called QQQM. After some quick research, I discovered that QQQM is a relatively new product from Invesco whereas QQQ is the long-standing Nasdaq 100 ETF from Invesco. 

What are the differences between QQQ and QQQM? Is one better than the other? 

Many readers have pointed out that QQQM has a lower MER than QQQ. So that begs the question, does it make sense to switch from QQQ to QQQM to save the expense ratio difference? 

I figured this is an interesting question to answer not just for myself but for readers deciding to invest between QQQ and QQQM.

Let’s take a look, shall we?

What is QQQ

Invesco QQQ ETF tracks the Nasdaq 100 Index by holding the 100 largest companies listed on the Nasdaq. The ETF is rebalanced quarterly and reconstituted annually to ensure it tracks the Nasdaq-100 index. 

QQQ started in March 1999 so it has been around for over 25 years. That’s quite a long time in the ETF world. At the time of writing, the ETF has $288.01 billion in market value (AUM). QQQ is the 5th largest ETF by AUM (asset under management)  in the US, trailing only behind SPY, IVV, VOO, and VTI. 

Because QQQ tracks the Nasdaq 100 index, it is very tech heavy. This should be a given for anyone looking to invest in QQQ. 

At 0.20% MER, QQQ is relatively inexpensive and comparable to XEQT, VEQT, and other all-in-one ETFs. However, QQQ’s 0.20% MER is more expensive than other index ETFs like VOO (0.03%), SPY (0.0945%), VTI (0.03%), and VCN (0.05%). 

What is QQQM 

Invesco QQQM ETF also tracks the Nasdaq-100 index and the ETF is rebalanced quarterly and reconstituted annually .(In fact, in terms of holdings and strategy, the two ETFs are virtually identical). At the time of writing it has $31.2 billion in market value (AUM). 

QQQM is a relatively new ETF that was started in October 2020. As readers pointed out, at 0.15% MER, QQQM is slightly cheaper than QQQ by 5 basis points. 

Comparison: QQQ vs. QQQM

Are there other key differences between QQQ and QQQM other than MER? Why would Invesco have two ETFs that track the same index?

Here’s a quick summary of the key differences between QQQ and QQQM:

	QQQ	QQQM	Comments
Number of holdings	101	103	Both hold more or less the same amount of stocks
Inception Date	Mar 10, 1999	Oct 13, 2020	QQQ is over 25 years old; QQQM is younger
Expense Ratio (MER)	0.20%	0.15%	QQQM is lower by 0.05%
Market value	$288.01 billion	31.2 billion	QQQ is more than 9 times larger than QQQM
Dividend Yield	0.64%	0.65%	QQQM has a very slight edge
3 Year Performance	+9.50%	+9.88%	QQQM is slightly better (because of the lower MER)
30-day average trading volume	46,434,632	2,379,944	QQQ has ~19.5 times the trading volume than QQQM

It shouldn’t be a surprise that QQQ and QQQM are virtually identical. The key differences are the MER, market value, and trading volume. Since QQQ has been in the market for over 25 years, it makes sense that QQQ has a bigger market value (AUM) and a higher average trading volume. 

As expected, the top 10 holdings for the two ETFs are the same stocks. Although the percentages are slightly different, I’d say the difference is negligible. 

	QQQ	QQQM
AAPL	9.07%	9.07%
MSFT	8.15%	8.14%
NVDA	8.02%	8.02%
AVGO	5.19%	5.19%
AMZN	4.82%	4.82%
META	4.81%	4.81%
TSLA	2.73%	2.73%
COST	2.61%	2.61%
GOOGL	2.50%	2.51%
GOOG	2.42%	2.41%
Top 10 %	50.32%	50.31%

The top 10 holdings make up more than 50% of both ETFs and the other 91/93 stocks QQQ/QQQM hold constitute a little bit less than 50% of the ETF. The top 10 holdings making up the bulk of the ETF isn’t unusual. 

Because QQQ has a higher trading volume, its trading spread, or the difference between the buy (ask) and sell (bid) prices, is much smaller than QQQM. 

For example, if I look up QQQ on Questrade when the market is open, the bid and ask spread is between 3 to 4 cents or about 0.008% of the last share price. 

Meanwhile, the bid and ask spread for QQQM is about 10 cents or about 0.05% of the last share price. 

According to Invesco, the average trading spread for QQQ was 0.00% while the average trading spread for QQQM was 0.02%. 

What does the lower bid/ask spread mean? If you trade in and out of the ETF more frequently or if you’re a short term trader, you would prefer the lower trading spread. Since we plan to buy and hold an ETF for a long time, the trading spread shouldn’t make a huge difference. 

So why did Invesco launch QQQM in 2020 given the close similarity between QQQ and QQQM? Why didn’t they simply lower QQQ’s expense ratio from 0.20% to 0.15% and call it a day? We’ve seen Vanguard lowering the expense ratio for VXC to match its competitor’s product (i.e. XAW). 

I believe it all comes down to money and profitability. Since QQQ is the 5th largest ETF by AUM in the US at $288.01 billion with an average daily trading volume of more than 46 million shares (or about $22 billion), lowering the expense ratio by 0.05% will cost Invesco a lot of money.

How much would it cost Invesco in revenue by lowering the MER by 0.05%? 

About $144 million in revenue a year!

That’s a lot of money whichever way you slice it! 

By having both QQQ and QQQM, Invesco can attract short term traders (i.e. institutions and more active traders) and long term investors (like you and me). Since big institutions typically prefer trading stocks or ETFs with a very high volume (i.e. better liquidity), they prefer trading QQQ over QQQM and the 0.05% MER difference doesn’t matter as much. 

Since individual DIY investors typically don’t buy or sell millions of shares and trade daily, we don’t care as much about trading volume or liquidity. We care more about the total cost of ownership. 

Is it worth switching from QQQ to QQQM? 

If you’re initiating a new position in the Nasdaq 100 index, I think it’s no brainer to buy QQQM and save yourself 0.05% in MER.

But what happens if you already own QQQ? Does it make sense to switch from QQQ to QQQM and save the 0.05% MER each year?

Let’s run a few different scenarios.

	QQQ (0.20%)	QQQM (0.15%)	Annual difference
$20k	$40	$30	$10
$50k	$100	$75	$25
$100k	$200	$150	$50
$250k	$500	$375	$125
$500k	$1,000	$750	$250
$1M	$2,000	$1,500	$500

Over the course of 10, 20, and 30 years (assuming the ETF value stays the same). That’s a difference of…

	Delta after 10 years	Delta after 20 years	Delta after 30 years
$20k	$100	$200	$300
$50k	$250	$500	$750
$100k	$500	$1,000	$1,500
$250k	$1,250	$2,500	$3,750
$500k	$2,500	$5,000	$7,500
$1M	$5,000	$10,000	$15,000

As you can see, the difference does add up over time. Let’s not forget that when you invest more money into QQQ/QQQM each year, the difference compounds.

Currently, we hold QQQ in our self-directed spousal RRSP in Questrade and self-directed RRSP in Wealthsimple. Even if we consider the $4.95 commission with Questrade, it makes sense to sell QQQ, pay $4.95, and buy QQQM at no commission (free ETF trading from Questrade). 

• You can open an account with Questrade using my referral code and get up to $250 bonus cash. Or enter referral code 826124747428063 when sign up.

Note, you only need to hold over $9,900 worth of QQQ to cover the $4.95 commission from the MER difference.

For Wealthsimple, since it’s commission free trading, it is simply to swap out QQQ in favour of QQQM and save the 0.05% MER fee each year.

• You can open an account with Wealthsimple Trade referral code and get a $25 credit bonus. If you become a Generation or Premium client within 30 days you can get $250 or $1,000 bonus rewards.

Even if your discount broker charges higher trading commission fees, for example, $9.99 per trade with TD Direct, if you hold more than 40k of QQQ, it is worth switching from QQQ to QQQM and saving yourself money in the long run. 

So where does that leave us?

Well, I think it makes sense for us to switch from QQQ to QQQM and save the 0.05% MER fee every year, especially considering we plan to increase our exposure in the Nasdaq 100 index over the next few years.

So, a few minutes placing selling orders then placing buying orders with the proceeds to save us 0.05% of management fees each year is very much worth the time. (Que )Cue???) the 15 minutes saves you money Geico commercial). 

Note: we hold QQQ in our self-directed RRSPs so there’s no capital gains implication if we sell QQQ and swap it for QQQM. If we were to hold QQQ in non-registered accounts, we’d have to take capital gain taxes into consideration. 

Summary – QQQ vs QQQM, does it make sense to switch

In summary, I believe both QQQ and QQQM are excellent ETFs to hold. They are very similar ETFs issued by Invesco, tracking the same index, the Nasdaq 100 Index. 

The key differences between the two are their AUM, expense ratios, and trading spreads. 

Some readers may be concerned about the liquidity but at over 2.3 million shares traded on a 30 day average for QQQM, I don’t think liquidity is a concern for DIY investors. 

To summarize, if you plan to trade more frequently, QQQ is a better choice due to the higher trading volume and smaller trading spread. If you plan to hold the ETF for the long term and add more shares regularly, then I believe QQQM is the better choice due to the lower MER fee.

We will plan to switch from QQQ to QQQM. Anyone else?