QQQ is a great ETF; the iShares Tech (IYW) is a good alternative

The Invesco QQQ ETF (QQQ) has been one of the best-performing funds in the past decades. It has soared from its all-time low of $17.64 in 2002 to over $480 today or a 2,885% increase. Also, it has accumulated over $292 billion in assets, making it one of the biggest funds in the world. 

iShares US Technology ETF (IYW) has done better

The Invesco QQQ ETF is a beloved fund because it tracks the Nasdaq 100 index, which is the best-known technology funds in the industry. It is made up of the 100 biggest companies in the technology sector, with the top constituents being the likes of Microsoft, Apple, Nvidia, Meta Platforms, and Netflix. 

If you love the QQQ ETF, you will likely love the iShares US Technology ETF (IYW), which is another popular fund with over $19.2 billion in assets. 

The IYW differs from QQQ because of how it is structured. While QQQ tracks the Nasdaq 100 index, the IYM tracks the Russell 1000 Technology RIC Index. It tracks 140 companies in the technology industry and distributes its dividends quarterly. 

38.40% of the companies are in software and services followed by 32.8% in the semiconductor and semiconductor equipment solutions. The other big segments in the fund are technology hardware and equipment, media and entertainment, and commercial and professional services. 

Like the QQQ ETF, the biggest companies in the fund are Microsoft, Apple, Nvidia, Meta Platforms, Broadcom, and Alphabet. Unlike QQQ, IYW is more consolidated since the top ten companies make up about 67% of the fund. The top ten companies in the QQQ fund account for 50% of the ETF.

Microsoft, the biggest company in the IYM accounts for 17% of the fund while Apple and Nvidia account for 16% and 15%. 

IYW vs QQQ ETFs

IYW has beaten the QQQ ETF

The iShares US Technology ETF has constantly beaten the Invesco QQQ in the past few years. For example, the fund grew by 65.5% in 2023 while the QQQ grew by 54%. 

Similarly, in 2019, the IYW fund grew by 48% while the QQQ fund rose by 38%. Further, in the past five years, the IYW fund has had total returns of 211% while the QQQ has risen 164%.

The same is happening this year as the IYW has jumped by 25% while the QQQ has risen by 19.2%.

IYW has done much better than other tech funds because of its concentration since its biggest companies have risen in the past few years. 

Therefore, based on past performance, there is a likelihood that the ETF will continue doing well in the future. 

Next catalysts for QQQ and IYM ETFs

There are two potential catalysts to watch. First, analysts believe that tech earnings will continue growing in the coming months as the global economy recovers. 

Second, there is a likelihood that the Fed will start to cut interest rates later this year. This will be an important move because of the vast sums of funds invested in money market funds, which have accumulated over $6 trillion in the past few months. 

When interest rates start falling, there is a likelihood that these funds will start moving to technology stocks. 

However, the concentration risk in IYM is something you should consider. As I have written before, there is a likelihood that Nvidia’s shares will pull back in the next few months if its growth momentum fades. Remember that the semiconductor industry is highly cyclical, with regular boom and busts. 

If Nvidia drops, it means that other semiconductor companies, which are core parts of the portfolio, will drop as well.