We can invest in the shares that make up the Nasdaq 100 by acquiring a position in QQQ portfolio.
Would you rather watch an introductory video before discussing in detail how we invest in QQQ?
Knowing the QQQ portfolio in depth can change the way you follow stock markets and manage your investments.
Until the late 1980s, those who observed variations in the Dow Jones index to know what was happening on Wall Street still dominated (Donald, Joe & Warren still consider how many points Dow Jones score every day).
Since then, the S&P 500 index has started to reign as a market measure.
It is still used to synthesize the global movement, and the main ETF that emulates it, SPY, is the most popular.
But every day more investors choose the Nasdaq 100 as the reference, as its portfolio is made up of the companies that lead the economy of our time.
It has an excellent relationship between yields and risks for more than ten years.
Since the monetary policy relaxation that began in the 2008 crisis, QQQ has clearly dominated yields against SPY (S&P 500) and DIA (Dow Jones), even paused in 2022, just because inflation issues.
These are some of the popular stocks in QQQ portfolio:
What is QQQ ?
QQQ is a kind of investment fund (ETF) that is listed on Wall Street and can be traded minute by minute as if it were a stock.
It has very high liquidity and an active options market, vital to be able to measure your risk levels and organize your investment strategies.
As we can see on the cover of its issuance prospect, this EFT created by INVESCO aims to emulate the yields of the Nasdaq 100 index, and has in its portfolio all the shares that make up that index.
Just as the Nasdaq 100 is just a mathematical calculation, QQQ is a real stock portfolio.
Quarterly pays dividends.
Its yields have historically been very similar to the index, and that’s why it has become the most popular ETF for investors who want to replicate the Nasdaq 100.
What advantages does QQQ have as an investment portfolio ?
QQQ can help you design your investment policy these days, accessing Wall Street’s most dynamic portfolio through a single asset.
The following key concepts in Finance are familiar and relevant to all:
Risk measurement and control
A well-diversified portfolio protects us from so-called «non-systematic risks», those affecting a particular company or sector.
How do we know it’s a well-diversified portfolio?
Because we have a tool to measure QQQ risk minute by minute: the expected volatility of the Nasdaq 100, called VXN.
Finally, let’s look at its adaptation to the principle of market efficiency.
In a market as liquid and universally analyzed as the QQQ portfolio, we can be confident that the market price reasonably reflects each company’s valuation with the information available at all times.
Unlike the other indices, on the Nasdaq 100, the weight of each stock in the portfolio is not determined by any Committee of Experts, but by the decisions made by investors acting on the Market every day.
There are many ways to use this portfolio in your investment policy.
On this site, we offer you an approach based on applying artificial intelligence fundamentals applied to finance.
The investment strategies were modeled on a set of 12 algorithms, which we have named AL-500.
It’s called the AL-500 because its purpose is to outperform the S&P 500 Index, and to achieve that goal while minimizing risks.
Analyzing this approach can be useful, either to adopt a similar one, or to generate your own investment policy.
Let’s see how it works in the case of QQQ.
The twelve algorithms generate buy or sell signals for different portions of our portfolio.
This means that, for example, a poor price performance in the short term will generate a sell signal for only a portion of the position in QQQ.
The remainder of the position will be subject to medium- and long-term performance variations.
So, changes in market conditions do not generate drastic decisions (sell or buy everything) but staggered decisions, designed to gradually exit the market in times of downturns and gradually enter the recovery and upside phases.
The relative weight of each algorithm is programmed according to the volatility (the risk) of QQQ.
So, at different times, we will have invested 20%, 60%, etc. in QQQ, reaching up to 100%, and the rest in Cash.
In this way, the risk of our portfolio, which we call AL-QQQ, will always be lower than the risk of QQQ.
We only share the total volatility of QQQ when AL-500 tells us to have 100% of our portfolio invested in QQQ. The rest of the time, our Cash position, which has zero volatility, generates a combined risk that is always lower.
Every trading day on Wall Street involves an update of the algorithms, and when any of them generates a buy-to-sell signal, an alert is triggered.
For example, let’s suppose that before the alert our portfolio was distributed like this: 70% in QQQ and 30% in Cash.
If the alert is to buy an additional 10%, then it will instruct us to affect part of our Cash position to increase our investment in QQQ and bring it to 80% of the portfolio.
Once the investment policies have been defined, and based on them the set of algorithms that we have called AL-500, we schedule a backtesting, that is, an evaluation of the results that AL-500 would have generated in the five-year period between the beginning of 2018 and the end of 2022.
These were the results:
Once the backtesting was done, we tested the performance of AL-500 applied to QQQ during 2023: