ETFs -- August 23, 2023

Locator: 45463INV.   

Updates

August 24, 2023: are folks even paying attention? The "Qs" are in the news every day it seems, as the "end-all to be-all" it seems. But look at this, with a $50,000 investment in Invesco's QQQ, you have $6,000 in APPL and $44,000 in 98 other individual stocks, none of which by themselves will move the QQQ needle. Why not just put $10,000 in each of the top five each quarter and re-balance every quarter? Yes, on a quarterly basis, not a lot of diversification, but with quarterly re-balancing based on educated "guesses," the diversification improves over time.

August 24, 2023: again, the QQQ has approximately 100 individual equity holdings (see below). Look what an investor can do with an investment of $5,000 or $50,000 in the top ten holdings at the same percentages. On the other side, look at the trivial amount a $500 billion mutual fund would get if it sold all of its Nvidia at the end of the quarter to lock in profit so the manager would get. her bonus -- it would not even move the needle on the fund's return. One has to remember, the fund also bought this equity at some point in the past.

August 24, 2023: why in the world would a serious investor invest in an ETF? Take QQQ, as an example? 

Like BRK, the top ten holdings in QQQ make up about 50% of total dollar value. The next 90 holdings make up the other 50% and not one of the next 90 holdings will ever move the needle for QQQ. And one pays a fee for an ETF. Why not simply start a new Schwab account (free, no fees, no minimu), "buy" the top ten holdings of any ETF one likes, and re-balance every quarter based on what the ETF is doing. 

Original Post

I've never understood the fascination with ETFs. It seems to me, "real" investors could do better.

Example: Invesco QQQ.

Two data points that make me question the fascination of ETFs.

Total expense ratio: 0.20%.

Approximately one hundred holdings. Here are the top 52 before I got bored and quit tallying.

QQQ	July 26, 2023
Apple	11.62%
MSFT	9.95%
AMZN	5.05%
Nvidia	4.30%
Meta	3.48%
Tesla	3.21%
Broadcom	3.13%
GOOG - A	2.77%
GOOG - B	2.75%
Pepsi	2.16%
Costco	2.05%
Adobe	1.97%
Cisco	1.79%
Netflix	1.56%
AMD	1.49%
Comcast	1.47%
T-Mobile	1.40%
Texas Instruuments	1.38%
INTC	1.38%
Honeywell	1.14%
QCOM	1.40%
Intuuit	1.14%
Amgen	1.03%
Starbucks	0.97%
Applied Materials	0.96%
Intuitiv Surgical	0.95%
Booking Holdings	0.89%
Mondelez	0.83%
Automatic Data Processing	0.81%
Analog Devices	0.80%
Gilead	0.79%
Vretex Pharm	0.75%
Lam Research	0.71%
PayPal	0.67%
Regeneron Pharm	0.64%
Palo Alto Networks	0.61%
Micron	0.59%
Synopsys	0.57%
CSX	0.55%
Cadence Design	0.53%
KLA	0.53%
Fortinet	0.50%
AirBnB	0.50%
Monster Beverage	0.50%
ASML	0.49%
Charter Comm	0.49%
Marriott	0.49%
MercadoLibre	0.49%
O’Reilly Auto	0.48%
NXP Semi	0.47%
Marvell Tech	0.45%
Cintas	0.43%

For those investing in an ETF, such as QQQ, some questions to ponder:

• do you expect to "make money" investing in QQQ?
  
• do you expect QQQ to do better than the NASDAQ as a whole?
• is there a NASDAQ ETF?
• if there is a NASDAQ ETF, has it historically done better or worse than the QQQ?
• could you invest without incurring any expenses? Any fees?
• can you think of a better way to invest in the NASDAQ?

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The Book Club

Edvard Muunch, Behind the Scream, Sue Prideaux, c. 2005.

Notes.