QQQJ: Hype Won't Save These Nasdaq Next Gen Stocks

seekingalpha07-23

QQQJ tracks the 101-200 largest non-financial stocks in the Nasdaq. Its expense ratio is 0.15% and the ETF has $667 million in assets under management.The "Next Gen" marketing is great, but the stocks...

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Its expense ratio is 0.15% and the ETF has $667 million in assets under management.The \"Next Gen\" marketing is great, but the stocks...</p>\n\n<a href=\"https://seekingalpha.com/article/4705522-qqqj-hype-wont-save-these-nasdaq-next-gen-stocks\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>QQQJ: Hype Won't Save These Nasdaq Next Gen Stocks</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nQQQJ: Hype Won't Save These Nasdaq Next Gen Stocks\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-07-23 00:34 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4705522-qqqj-hype-wont-save-these-nasdaq-next-gen-stocks><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>QQQJ tracks the 101-200 largest non-financial stocks in the Nasdaq. Its expense ratio is 0.15% and the ETF has $667 million in assets under management.The \"Next Gen\" marketing is great, but the stocks...</p>\n\n<a href=\"https://seekingalpha.com/article/4705522-qqqj-hype-wont-save-these-nasdaq-next-gen-stocks\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4561","symbol_name":"索罗斯持仓","start_time":0,"source_url":"https://seekingalpha.com/article/4705522-qqqj-hype-wont-save-these-nasdaq-next-gen-stocks","article_id":"2453189797","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1065782522/image_1065782522.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2453189797","pubTimestamp":1721666073,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"QQQJ tracks the 101-200 largest non-financial stocks in the Nasdaq. 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Its expense ratio is 0.15% and the ETF has $667 million in assets under management.The \"Next Gen\" marketing is great, but the stocks are not. QQQJ has substantially lagged behind other mid-cap peers, and its fundamentals don't give much hope for a turnaround.I found weaknesses in growth, value, and earnings momentum that should give prospective shareholders pause. As alternatives, the metrics for XMHQ, XMVM, and SPMD are more compelling for different reasons.I'm reiterating my \"sell\" rating from February.   Tero VesalainenInvestment Thesis On February 8, 2024, I issued a \"sell\" rating for the Invesco Nasdaq Next Gen 100 ETF (NASDAQ:QQQJ), reasoning that its valuation was excessive and other mid-cap funds like the Invesco S&P MidCap Quality ETF (XMHQ) and the Invesco S&P MidCap Value With Momentum ETF (XMVM) were stronger fundamentally. Since that article was published, QQQJ gained only 4.09%, lagging behind XMHQ and XMVM by 3.86% and 6.15%, respectively. Seeking AlphaThe SPDR S&P 400 Mid Cap ETF (SPMD) and the Invesco QQQ ETF (QQQ) also outperformed, though to be fair, the latter's returns were driven by a handful of stocks whose performance may not repeat. Still, QQQJ has struggled since its October 2020 inception, and I think it's time for shareholders to reevaluate their position. To assist, I've compiled a set of fundamental statistics that demonstrate these \"Next Gen\" stocks don't offer enough growth potential, and since their value and earnings momentum metrics are not compelling either, QQQJ is not worth owning. I'm reiterating my \"sell\" rating, and I look forward to walking you through why in more detail below. QQQJ Overview Strategy Discussion QQQJ tracks the NASDAQ Next Generation 100 Index, selecting the 101-200 largest non-financial stocks in the NASDAQ-100 Index and weighting them by market cap. QQQJ's weighted average $19.4 billion market cap places it in the middle of the mid-cap category, as confirmed by Morningstar. MorningstarMorningstar also indicates QQQJ has a slight growth tilt, barely qualifying for the \"mid-cap growth\" category. As such, XMHQ and SPMD are potential alternatives. In addition, I've included XMVM in the analysis to highlight the sharp value differences between it and QQQJ. Seeking AlphaBefore we look at performance, I want to highlight how as a mid-cap fund, QQQJ's holdings \"have somewhere to go\". That is, any stock that does outperform will graduate to QQQ, and vice versa. On July 22, 2024, that happened with Super Micro Computer (SMCI), a stock up 162% in the last year. It won't have a huge impact, as its weighting over the last few months was between 3-3.5%. However, it's just one example of a stock you might not want to part with, given how analysts still expect 81% earnings per share growth for the next year. Performance Analysis Since November 2020, QQQJ has gained only 16.71% compared to 93.11%, 95.83%, and 67.80% for XMHQ, XMVM, and SPMD, respectively. Its 35.93% drawdown from November 2021 to September 2022 was massive compared to these peers, and except for the two months in 2020, it's been the worst performer every year. Portfolio VisualizerThese numbers are difficult to digest. However, QQQJ's track record is not what makes it a bad investment today. Instead, it's the fundamentals that tell the real story. As we'll see shortly, QQQJ's growth, value, and earnings momentum deficiencies are why it will continue to underperform. QQQJ Analysis Sector Allocations The following table highlights QQQJ's sector exposures alongside XMHQ, XMVM, SPMD, and QQQ. One key difference with QQQ is 16% less exposure to Technology stocks (36% vs. 52%), offset by 16% more to Health Care stocks (22% vs. 6%). The Sunday InvestorExcept for SPMD, these ETFs share one feature: high concentration in a single sector. XMHQ is 35% Industrials, particularly in Building Products, which comprise 11% of the portfolio. In contrast, XMVM is 36%, half of which is allocated to Regional Banks. This high concentration feature alone is risky and often leads to inconsistent returns year-over-year as certain sectors fall in and out of favor. Fundamental Analysis By Sub-Industry The next table highlights selected fundamental metrics for QQQJ's top 25 sub-industries, which total 86.66% of the portfolio. At this level, XMHQ and XMVM are a bit better diversified, while QQQ is the least diversified at 94.40%. Please note that these fundamentals were calculated with the latest holdings, which exclude SMCI. The Sunday InvestorHere are three additional observations to consider: 1. Application Software is QQQJ's largest sub-industry, comprising 11% of the portfolio. Interestingly, no stocks representing this sub-industry are in the top ten, so you must look beyond the front page to get a feel for the ETF. These stocks have solid fundamentals, offering 12.78% one-year estimated earnings growth at a 27.60x forward earnings valuation (19.44x harmonic average), as well as good earnings momentum, evidenced by their 16.52% most recent quarter earnings surprise and 7.04/10 EPS Revision Score. However, QQQJ's overall growth metrics are pretty weak for a mid-cap growth fund. The earlier graphic from Morningstar hinted at this, but here is how QQQJ compares against other category peers on various growth metrics:  5Y Sales CAGR: 13.74% (#15/20) 3Y Sales CAGR: 15.66% (#19/20) 1Y Sales Growth: 7.89% (#14/20) 1Y Estimated Sales Growth: 8.87% (#15/20) 3Y EBITDA CAGR: 12.51% (#16/20) 1Y EBITDA Growth: 8.99% (#16/20) 1Y Estimated EBITDA Growth: 10.55% (#15/20) 3Y EPS CAGR: 7.14% (#17/20) 1Y EPS Growth: 9.91% (#14/20) 1Y Estimated EPS Growth: 9.49% (#18/20) 3Y Net Income CAGR: 6.23% (#17/20) 3Y FCF CAGR: 8.71% (#18/20) Seeking Alpha Sector-Adjusted Growth Score: 5.22/10 (#18/20)  The evidence that QQQJ is a poor growth ETF is overwhelming, which helps to explain why it has struggled so much in this growth-favored market. It's easy to overlook that, given the success of QQQ, but the main takeaway for readers is that the two are very different funds, and most of QQQJ's stocks will likely never get anywhere near large enough to qualify for QQQ. 2. Usually, lower growth funds compensate by offering investors a better valuation. However, QQQJ's 25.75x forward earnings valuation (17.59x harmonic average) is misleading. Consider the following:  11 stocks (10.37%) have negative estimated one-year earnings and are excluded from the portfolio P/E calculation 7 stocks (9.21%) have forward P/E's above 60, Morningstar's cap.  These exceptions only apply to 6.04% of XMHQ's total weight, indicating its 23.36x forward P/E (18.30x harmonic average) is more accurate. We can also see this when evaluating other valuation metrics where the denominator is more likely to be positive, like sales, cash flow, and EBITDA. In each of these cases, XMHQ comes ahead. The Sunday InvestorNot surprisingly, XMVM offers a substantial discount on valuation, but it comes at the cost of minimal sales and earnings growth. That's not necessarily the best solution, but even SPMD offers investors a far better combination of growth and value plus superior diversification. 3. QQQJ has somewhat poor earnings momentum, as measured by its 5.87/10 EPS Revision Score, which I derived from Seeking Alpha Factor Grades. The problem isn't with its top stocks, but I noticed a lot of dead weight as I scrolled through the holdings list. For example, these five stocks have \"D\" or worse EPS Revision Grades and, not surprisingly, have delivered negative returns over the last year. Seeking AlphaQQQJ and QQQ are similar in that their first 50 holdings have better earnings revision grades than their bottom 50 holdings. However, QQQJ's bottom 50 holdings comprise 35% of the fund compared to 14% for QQQ, hence, my \"dead weight\" argument. This setup could be temporary, but switching to an ETF like QQQJ would also be contrarian. Earnings revisions still favor QQQ, and while it is concerning how only a select number of mega-cap stocks are driving its returns, QQQJ doesn't seem like a better solution. Investment Recommendation  Since QQQJ launched in October 2020, it's substantially lagged behind other mid-cap funds like XMHQ, XMVM, and SPMD. While that is not grounds for a \"sell\" rating, QQQJ's poor fundamentals regarding growth, value, and earnings momentum indicate there are many better options in the mid-cap space. \"Next Gen\" is good marketing, but QQQJ is not a good choice, and I recommend you explore some of the alternatives I discussed today. Thank you for reading, and I look forward to your comments.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2453189797"}