QQQ vs. QUAL: What’s The Difference?

The Invesco QQQ Trust (QQQ) and the iShares MSCI USA Quality Factor ETF (QUAL) are both among the Top 100 ETFs. QQQ is a Invesco Large Growth fund and QUAL is a iShares Large Blend fund. So, what’s the difference between QQQ and QUAL? And which fund is better?

The expense ratio of QQQ is 0.05 percentage points higher than QUAL’s (0.2% vs. 0.15%). QQQ also has a higher exposure to the technology sector and a higher standard deviation. Overall, QQQ has provided higher returns than QUAL over the past ten years.

In this article, we’ll compare QQQ vs. QUAL. We’ll look at portfolio growth and holdings, as well as at their risk metrics and performance. Moreover, I’ll also discuss QQQ’s and QUAL’s industry exposure, annual returns, and fund composition and examine how these affect their overall returns.

Summary

QQQ QUAL
Name Invesco QQQ Trust iShares MSCI USA Quality Factor ETF
Category Large Growth Large Blend
Issuer Invesco iShares
AUM 174.51B 23.93B
Avg. Return 21.27% 13.42%
Div. Yield 0.49% 1.29%
Expense Ratio 0.2% 0.15%

The Invesco QQQ Trust (QQQ) is a Large Growth fund that is issued by Invesco. It currently has 174.51B total assets under management and has yielded an average annual return of 21.27% over the past 10 years. The fund has a dividend yield of 0.49% with an expense ratio of 0.2%.

The iShares MSCI USA Quality Factor ETF (QUAL) is a Large Blend fund that is issued by iShares. It currently has 23.93B total assets under management and has yielded an average annual return of 13.42% over the past 10 years. The fund has a dividend yield of 1.29% with an expense ratio of 0.15%.

QQQ’s dividend yield is 0.80% lower than that of QUAL (0.49% vs. 1.29%). Also, QQQ yielded on average 7.85% more per year over the past decade (21.27% vs. 13.42%). The expense ratio of QQQ is 0.05 percentage points higher than QUAL’s (0.2% vs. 0.15%).

Fund Composition

Industry Exposure

QQQ vs. QUAL - Industry Exposure

QQQ QUAL
Technology 45.46% 22.52%
Industrials 2.61% 9.22%
Energy 0.0% 2.24%
Communication Services 19.55% 11.44%
Utilities 0.89% 2.41%
Healthcare 7.04% 13.22%
Consumer Defensive 4.68% 8.57%
Real Estate 0.0% 2.72%
Financial Services 2.51% 15.87%
Consumer Cyclical 17.27% 9.43%
Basic Materials 0.0% 2.35%

The Invesco QQQ Trust (QQQ) has the most exposure to the Technology sector at 45.46%. This is followed by Communication Services and Consumer Cyclical at 19.55% and 17.27% respectively. Real Estate (0.0%), Energy (0.0%), and Utilities (0.89%) only make up 0.89% of the fund’s total assets.

QQQ’s mid-section with moderate exposure is comprised of Financial Services, Industrials, Consumer Defensive, Healthcare, and Consumer Cyclical stocks at 2.51%, 2.61%, 4.68%, 7.04%, and 17.27%.

The iShares MSCI USA Quality Factor ETF (QUAL) has the most exposure to the Technology sector at 22.52%. This is followed by Financial Services and Healthcare at 15.87% and 13.22% respectively. Basic Materials (2.35%), Utilities (2.41%), and Real Estate (2.72%) only make up 7.48% of the fund’s total assets.

QUAL’s mid-section with moderate exposure is comprised of Consumer Defensive, Industrials, Consumer Cyclical, Communication Services, and Healthcare stocks at 8.57%, 9.22%, 9.43%, 11.44%, and 13.22%.

QQQ is 22.94% more exposed to the Technology sector than QUAL (45.46% vs 22.52%). QQQ’s exposure to Communication Services and Consumer Cyclical stocks is 8.11% higher and 7.84% higher respectively (19.55% vs. 11.44% and 17.27% vs. 9.43%). In total, Real Estate, Energy, and Utilities also make up 6.48% less of the fund’s holdings compared to QUAL (0.89% vs. 7.37%).

Holdings

QQQ - Holdings

QQQ Holdings Weight
Apple Inc 11.0%
Microsoft Corp 9.82%
Amazon.com Inc 8.35%
Facebook Inc Class A 4.01%
Facebook Inc A 4.01%
Alphabet Inc Class C 3.9%
Tesla Inc 3.9%
NVIDIA Corp 3.65%
Alphabet Inc Class A 3.53%
Alphabet Inc A 3.53%

QQQ’s Top Holdings are Apple Inc, Microsoft Corp, Amazon.com Inc, Facebook Inc Class A, and Facebook Inc A at 11.0%, 9.82%, 8.35%, 4.01%, and 4.01%.

Alphabet Inc Class C (3.9%), Tesla Inc (3.9%), and NVIDIA Corp (3.65%) have a slightly smaller but still significant weight. Alphabet Inc Class A and Alphabet Inc A are also represented in the QQQ’s holdings at 3.53% and 3.53%.

QUAL - Holdings

QUAL Holdings Weight
Facebook Inc Class A 4.77%
Nike Inc Class B 4.05%
Microsoft Corp 3.54%
Apple Inc 3.52%
Johnson & Johnson 2.99%
BlackRock Inc 2.87%
Target Corp 2.8%
Mastercard Inc Class A 2.72%
NVIDIA Corp 2.71%
Alphabet Inc Class A 2.49%

QUAL’s Top Holdings are Facebook Inc Class A, Nike Inc Class B, Microsoft Corp, Apple Inc, and Johnson & Johnson at 4.77%, 4.05%, 3.54%, 3.52%, and 2.99%.

BlackRock Inc (2.87%), Target Corp (2.8%), and Mastercard Inc Class A (2.72%) have a slightly smaller but still significant weight. NVIDIA Corp and Alphabet Inc Class A are also represented in the QUAL’s holdings at 2.71% and 2.49%.

Performance

Annual Returns

QQQ vs. QUAL - Annual Returns

Year QQQ QUAL
2020 48.6% 16.96%
2019 39.12% 34.14%
2018 -0.14% -5.77%
2017 32.7% 22.26%
2016 7.01% 9.18%
2015 9.54% 5.56%
2014 19.12% 11.62%
2013 36.6% 0.0%
2012 18.09% 0.0%
2011 3.44% 0.0%
2010 19.89% 0.0%

QQQ had its best year in 2020 with an annual return of 48.6%. QQQ’s worst year over the past decade yielded -0.14% and occurred in 2018. In most years the Invesco QQQ Trust provided moderate returns such as in 2012, 2014, and 2010 where annual returns amounted to 18.09%, 19.12%, and 19.89% respectively.

The year 2019 was the strongest year for QUAL, returning 34.14% on an annual basis. The poorest year for QUAL in the last ten years was 2018, with a yield of -5.77%. Most years the iShares MSCI USA Quality Factor ETF has given investors modest returns, such as in 2010, 2015, and 2016, when gains were 0.0%, 5.56%, and 9.18% respectively.

Portfolio Growth

QQQ vs. QUAL - Portfolio Growth

Fund Initial Balance Final Balance CAGR
QQQ $10,000 $38,251 21.27%
QUAL $10,000 $23,251 13.42%

A $10,000 investment in QQQ would have resulted in a final balance of $38,251. This is a profit of $28,251 over 7 years and amounts to a compound annual growth rate (CAGR) of 21.27%.

With a $10,000 investment in QUAL, the end total would have been $23,251. This equates to a $13,251 profit over 7 years and a compound annual growth rate (CAGR) of 13.42%.

QQQ’s CAGR is 7.85 percentage points higher than that of QUAL and as a result, would have yielded $15,000 more on a $10,000 investment. Thus, QQQ outperformed QUAL by 7.85% annually.


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