ETF Insights Report – Invesco NASDAQ 100 ETF – TSE:QQC

Invesco NASDAQ 100 ETF – QQC.TO

The fund seeks to replicate, to the extent reasonably possible and before fees and expenses, the performance of the Nasdaq-100 Index, or any successor thereto, on an unhedged basis, in the case of any unhedged units, or on a hedged basis, in the case of any hedged units. This Invesco ETF invests, directly or indirectly, primarily in equity securities of companies listed on The Nasdaq Stock Market LLC.

Focus area	Score	★★★★★
Performance (CAGR)	14.26%	★★★★★
Fees (MER)	0.2%	★★★★
Volatility (Beta)	1.06	★★★★
Distribution (Yield)	0.5%	★
Valuation (Forward P/E)	27	★★
5-year earnings growth	8.78%	★★★★

Pros

Single-click exposure to the top 100 non-financial technology companies in the United States
This is a newer, unhedged version of QQC.F.TO. Unhedged ETFs will be better for most Canadians, as they help reduce fees. This is explained more in the risk portion of this report
Strong exposure to the AI boom through the Magnificent 7

Cons

Valuations are high. The top 5 holdings inside of this fund, which make up around a third of total assets, are trading at all-time high valuations
Although the distribution is small, this fund will be exposed to withholding tax even inside of an RRSP, as it is a Canadian fund that holds a US-based ETF
Although fees aren’t necessarily on the high end, they’re 0.05% higher than simply owning the US-based Invesco ETF QQQM

QQC seeks to track the investment results of the NASDAQ-100 Index. The fund generally will invest at least 90% of its total assets in the stocks on the NASDAQ 100.

The NASDAQ-100 is a smaller subset of the NASDAQ Composite Index. We can think of this as the TSX 60 being a smaller portion of the TSX Composite. There are more than 2500 stocks listed on the NASDAQ exchange, and this fund aims to give investors exposure to the 100 largest that are not financial companies.

Because the NASDAQ is so heavily reliant on technology companies, it doesn’t really change the asset allocations all that much. The NASDAQ Composite only has around 4% financial exposure.

The true difference is that you’re getting more allocations to the larger companies, as it is a market-cap-weighted index. The larger the company, the higher percentage of the portfolio it will make up.

This isn’t apparent at the top end of the holdings. In fact, the NASDAQ Composite contains higher weightings of many larger technology companies in the US. Where it will come into play is with the middle-of-the-line tech options, say, the remaining 90 stocks, will have higher weightings in the NASDAQ 100 than they would the Composite. A quick example of this would be Costco’s weighting in the NASDAQ Composite, which is around 1.2%, while in the NASDAQ 100 it is 2.5%.

Sector Risk	High
Concentration Risk	Low
Geographical Risk	High
Liquidity Risk	Low

One of this fund’s primary risks is its reliance on larger technology companies to drive performance. Many investors get caught up in the recency bias in terms of overall performance. Just because big tech has performed well over the last 10-15 years doesn’t mean it will perform well moving forward.

The AI boom caused U.S. tech options to trade at sky-high valuations. Let’s utilize Microsoft as an example. At one point, it was trading at a 30%+ premium to its typical 10-year historical valuations. Typically, I call this “priced to perfection.” Fast forward to the drawdown in late 2024/2025, and Microsoft reverted back to historical valuations relatively quickly.

Valuations make sense if these companies can continue to turn out the large-scale growth they have been due in part to the rapid acceleration in AI growth. However, if that growth were to slow, we would likely see these companies trade back in line with historical averages, much like Microsoft did. So, it is important to understand that the concentration in these expensive companies is high in this fund.

Another element of risk here is the fund’s non-currency hedged nature. I will lay out my general thoughts on currency hedging to give you an idea of whether it will benefit you.

In my opinion, currency hedging is best utilized for those who rely on their portfolios for a source of CAD income or expect to in the short to medium term. For investors who are in retirement or close to retirement, a swing in currency prices can have a detrimental impact on your cash flows. With an unhedged ETF, you own both the stocks and the currency.

For an investor with a longer-term horizon and someone who doesn’t need to touch their capital, unhedged ETFs can save paying some unnecessary fees. Currency fluctuations tend to even out over the long term. Case in point: our dollar is trading at the same amount now that it was seven years ago. That is seven years of added hedging fees to achieve essentially nothing.

In a single sentence, my overall thoughts on hedging are straightforward. The shorter your time horizon, the more incentive you should have to protect yourself from currency swings.

This risk is easily mitigated by simply owning QQC.F.TO, the hedged version of this ETF.

Top 10 Holdings	Allocation
Apple (AAPL)	9.2%
Microsoft (MSFT)	7.9%
NVIDIA (NVDA)	7.4%
Amazon (AMZN)	5.8%
Broadcom (AVGO)	3.6%
Meta Platforms (META)	3.4%
Neflix (NFLX)	2.8%
Costco (COST)	2.7%
Tesla (TSLA)	2.6%
Microsoft (MSFT)	2.4%

I’d like to clarify one thing: the actual holdings of QQC.TO are simply QQM, which is Invesco’s U.S.-listed NASDAQ 100 ETF. These U.S. providers create Canadian currency ETFs that simply hold their U.S. product. This allows them to get exposure to Canadian investors who don’t want to convert currencies. You will see this on a large amount of funds here in Canada that give investors U.S. exposure.

I’ve instead chosen to list the underlying holdings of QQM because, in reality, this is what you own. As you’ll see, the fund is, for the most part, a large play on what they call the Magnificent 7, which is a freshly minted name for the 7 best-performing technology stocks in the United States.

These 7 stocks are Apple, Microsoft, Alphabet, Amazon, NVIDIA, Tesla, and Meta. Prior to the Mag 7, the main acronym for U.S. tech stocks was FAANG. This consisted of Facebook (now Meta), Apple, Amazon, Netflix, and Google (Now Alphabet).

Overall, the top holdings in this fund give an investor strong exposure to some of the world’s fastest-growing technology names. But as mentioned in the risk portion of this report, it is important to understand that valuations among the highest allocated holdings in this fund are near all-time-highs. If we see a continued drawdown in U.S. tech names, the NASDAQ 100 will no doubt struggle.

If the concentration risk of these top names makes you uncomfortable, Invesco does offer an equal-weighted version of the NASDAQ-100, trading under the ticker QQEQ.TO. It has significantly underperformed QQC to date. However, there is no guarantee of success for U.S. big techs in the future.

	QQC	ZNQ	HXQ
Returns	✅
Diversification	✅	✅	✅
Fees	✅
Tax efficiency			✅
Distribution	✅

QQC ticks all the boxes as a rock-solid NASDAQ-100 ETF. In terms of performance, it is the best-performing among the three listed above, with the others being the BMO NASDAQ 100 ETF ZNQ and the Global X NASDAQ 100 ETF HXQ.

As you can see by the chart at the top of the report, however, we’re splitting hairs here in terms of performance. You’ll see Invesco outperforming the other two solely because it has the lowest fees. QQC’s management fee is 0.2%, while BMO’s fee stands at 0.39%, and Global X’s at 0.28%.

Diversification among the three funds is a wash, as they all track the same index.

The key decision comes down to tax efficiency, and this is where HXQ is going to stand out. Global X’s fund HXQ is a total return fund. I won’t get into the complete details of how they achieve this as it’s quite complex, but all you need to know is that HXQ will not pay out any distributions. Instead, the distributions will be reflected in the ETF unit price.

This creates a significant tax advantage for those with this fund in a taxable account. Instead of paying tax on the distributions you would frequently get from a fund like QQC, you won’t have to pay any tax owning HXQ until you sell.

This creates an additional tax advantage because the sale of HXQ will result in a capital gain, not dividend/interest income. For some, capital gains may be the more tax-friendly option.

If the fund is in a tax-sheltered account, we kind of go back to the splitting hairs point, as the lower fees of QQC are likely to offset any withholding tax you’d pay on the distributions, as the fund’s distribution is rarely made up of actual dividends.

Yield	0.49%
Payout frequency	Quarterly

Although HXQ is the most tax-friendly from a distribution standpoint, there is not much withholding tax on QQC because the fund doesn’t really pay out dividends. The bulk of the distribution is made up of foreign income or capital gains. In 2023, the fund had to pay around 3.4% of its distribution in foreign tax.

With a distribution yield of only around 0.49%, paid quarterly, you’re certainly not buying this fund for its income. It is a fund aimed at providing total returns to investors via capital appreciation. The low yield results from many of the underlying holdings choosing to reinvest capital back into the business rather than pay it out to shareholders.

There are two funds in Canada that are, in my opinion, slam-dunk options for Canadian investors who want exposure to the NASDAQ-100 without any income-generating perks. One is QQC, and the other is HXQ.

In a taxable account, I would lean more toward HXQ and its total return strategy. This would allow investors to defer taxes until they choose to sell the fund, whereas, with something like QQC, you’ll need to pay tax on the distribution in the year you receive it.

However, with a yield of under 0.5%, the taxes will be relatively miniscule anyway.

When we look to tax-sheltered accounts like a TFSA or RRSP, yes, you will still pay withholding tax on a portion of the distribution from QQC. However, the bulk is capital gains. The lower fees of QQC offset the fact you have to pay a withholding tax on a small portion of the distribution. As I mentioned in the distribution section, it was around 3.4% of the entire distribution in 2023.

QQC’s lower fees will likely have it edging out HXQ in terms of total returns, but again, we’re splitting hairs here and talking about a minuscule amount of returns. An investor’s current personal tax situation could have one easily leaning to one fund or the other.

Overall, I think they’re the two best options in the country.

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