An analysis by Daily Investor shows that the Invesco QQQ Trust ETF, which tracks the Nasdaq 100, outperformed the Vanguard S&P 500 ETF over the last decade.
An Exchange Traded Fund (ETF) is a listed investment product that tracks the performance of a group of shares, bonds, or commodities.
ETFs are attractive because they are easy to buy and sell on stock exchanges and have live prices which change based on their underlying assets.
ETFs are typically passively managed. They track an index instead of attempting to outperform the market.
They offer investors a diversified investment product that doesn’t require a minimum investment amount as most mutual funds do.
Another attractive feature of ETFs is their costs. Because they are mostly passively managed funds, they do not require high research costs.
The lower costs of ETFs mean investors keep a higher portion of their returns when compared to mutual funds or hedge funds.
There are numerous ETFs available to South African investors, including funds which track international indices.
Many South African investors want exposure to the US market, and two popular indices are the S&P 500 and the Nasdaq 100.
Daily Investor compared a $100 investment in two dollar-denominated ETFs tracking the S&P 500 and the Nasdaq 100 since September 2010 as possible investment options.
- Vanguard S&P 500 ETF – Tracks the S&P 500
- Invesco QQQ Trust ETF – Tracks the Nasdaq 100
The Invesco ETF charges an annual management fee of 0.2%, almost seven times more than the 0.03% charged by the Vanguard.
Despite the higher fees, the Invesco Nasdaq 100 ETF produced the highest return over the last twelve years.
The $100 Invesco QQQ Trust ETF investment grew to $644 over the reporting period, equivalent to an annualised return of 16.43%.
In comparison, the Vanguard S&P 500 ETF investment increased from $100 to $447 – equivalent to a 13.63% return.
The Invesco fund did have a higher risk, as seen in its return standard deviation of 20.67%, compared to the Vanguard fund’s 17.54%.
Vanguard S&P 500 ETF versus Invesco QQQ Trust ETF
The chart below shows the performance of the Vanguard S&P 500 ETF and Invesco QQQ Trust ETF over the last twelve years.