It might be tempting to dabble with exotic or offbeat investments in the short term. But if you're looking to beat the S&P 500 over the long haul, one ETF stands apart: Invesco QQQ Trust.
The Invesco QQQ ETF, usually just called QQQ, is a top performer this year. But more importantly, it's the very top performing, actively traded, U.S. diversified ETF over the past 10 years, says an Investor's Business Daily analysis of data from Morningstar Direct. The QQQ gained 18.1% annually over the past 10 years. That tops all of the nearly 300 ETFs in the category. That easily outpaces the 12.6% average annual gain of the SPDR S&P 500 ETF Trust — the cornerstone of most investors' portfolios.
And the QQQ is cheap, only charging 0.2%. There's an even cheaper version, the Invesco Nasdaq 100 ETF, which charges just 0.15%. Compare that to the 0.75% charged by ARK Innovation. And ARK Innovation gained just 2.6% annually in the past 10 years.
What's the secret of QQQ's run? Simple. It's focused on large-cap growth stocks by definition. The ETF owns the 100 largest, nonfinancial stocks on the Nasdaq. And that just so happens to be the market's sweet spot.
"Investors aren't ready to give up growth," said Roxanna Islam, head of sector and industry research at Vetta Fi. "Crypto, Big Tech and AI have all contributed to excitement for growth stocks."
Loading Up On Growth Long Term
Growth stocks in the S&P 500 and Nasdaq continue to set the market's pace. And that goes for the long term, too.
Looking inside the QQQ, you can find some stellar performers. Advanced Micro Devices posted an average annual gain of 47% in the past 10 years. Just this year, AMD is up nearly 20%. And AMD is closely followed by Nasdaq 100 leaders like Broadcom and Cadence Design Systems with average annual gains of 36% and 35%, respectively.
Betting on the biggest growth stocks has paid off handsomely over the years. Schwab US Large-Cap Growth, which owns roughly 250 large-growth stocks, is near the top of the 10-year leaderboard. It gained an average annual 15.6% in the 10 years' time and only charges 0.04%.
But there are some facts you should know before shifting your whole portfolio into large-cap growth stocks.
Looking At S&P 500 Growth For The Very Long Haul
Growth stocks seem unstoppable now, but that's not always the case. Value stocks actually hold the edge over very long periods.
The IFA U.S. Large Value Index rose 10.6% annualized since 1928, says Index Fund Advisors. That's greater than the IFA NSDQ Index' 10.4% rise in that long period of time. Additionally, large value stocks tend to be 17% less risky than the Nasdaq stocks over the long haul.
And this year, investors do seem to be chasing even more growth. The QQQ this year is up 6.9%, only marginally topping the 6.7% return of the S&P 500. "I think eventually we will see value come back into favor when valuations peak for growth stocks," Islam said. Additionally, many investors are loaded up with large growth stock ETFs that are heavily tilted toward the Magnificent Seven stocks.
Eventually, smaller and more value-priced stocks will get their turn, Islam said. "Investors may also choose to mix both growth and value characteristics in a GARP ETF like the Invesco S&P 500 GARP ETF."
Top Diversified ETFs For The Long Haul
Based on 10-year average annual returns
| Name | Ticker | 10-year annualized return |
|---|---|---|
| Invesco QQQ Trust | 18.07% | |
| iShares Russell Top 200 Growth | 16.80 | |
| Schwab US Large-Cap Growth | 15.63 | |
| Vanguard Mega Cap Growth | 15.57 | |
| Vanguard Russell 1000 Growth | 15.53 | |
| iShares Russell 1000 Growth | 15.43 | |
| Fidelity Nasdaq Composite | 15.21 | |
| Fidelity Enhanced Large Cap Growth | 14.82 | |
| Vanguard Growth | 14.68 | |
| Benchmark: S&P 500 | 12.69 |
