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Invesco QQQ Trust/ QQQ @ $212.90 Wisdomtree Nasdaq 100 3x leveraged/ QQQ3 @ $1400 Polar Capital Technology Trust/ PCT @ 1734p

April 23, 2020


The chart above shows the performance of the US Nasdaq 100 share index. A key point about this index is that it excludes financial shares. This allows technology shares to have a heavy weighting, which is important because according to statisticians all the earnings growth in the corporate sector since 2009 has come from technology shares.

My simple conclusion from this is that technology shares generally and the Nasdaq 100 index specifically are a great place to invest your money. You don’t have to wrack your brains about which share to buy. You don’t even have to buy the best performers because the index is periodically rebalanced with rising shares gaining a higher weighting and vice versa for weaker performers. In effect the Nasdaq 100, like most indices, rewards and reflects success.

Another simple view, looking at the performance since the index was launched in January 1985, is that it has been better to be a bull than a bear – much better since the index has risen 70 times since then. I have not looked at every single competing index so I can’t say for sure but I would be surprised if the Nasdaq 100 is not the world’s best performing major index over that period.

I can only track the FTSE 100 index back to April 1988 but since then the index has risen 3.4 times. The Nasdaq 100 has outperformed in by over 20 times and that does not take into account the weakness of the pound against the dollar. I recently wrote in one of my printed newsletters than anyone who held a portfolio based on the constituents of the FTSE 100 should sell them all and reinvest the money in QQQ, an ETF which tracks the Nasdaq 100.

An alternative strategy, which was highlighted in the last issue of QV for ETFs, is to buy shares in Polar Capital Technology, a UK-quoted investment trust, which has done brilliantly thanks to its focus on technology shares generally and US technology shares particularly.

The last option for investors who like a gamble is to buy shares in QQQ3, an ETF, which delivers a QQQ-style performance but multiplied three times up and down. A complication with this trust is that it is rebalanced daily so it delivers three times the performance of the Nasdaq 100 on any given day but over more extended periods has a life of its own. Even so it does well. Since launch in 2013 it has risen 15.5-fold but it can be stomach-churningly volatile. High to low since the February 2020 peak the shares dropped from $2,573 on 19 February to $688.5 on 23 March; that is a drop of 73.3pc in little more than a month.

I have begun trying to turn this volatility into an advantage by tipping the shares after these plunges. Accordingly I recommended QQQ3 at $915 on 20 March and $1180 on 9 April. The price is currently $1400.

As I write several of my alerts for QQQ3 are showing a loss although the overall result is a profit. By contrast, QQQ, the unleveraged ETF, which exactly tracks the Nasdaq 100, long term as well as daily, has been recommended 10 times prior to this recommendation and is in profit on every alert except for a tiny deficit for an alert made on 2 March before the Covid-19 panic really hit stock markets.

In the long run, as you would expect, the leveraged version, QQQ3, does much better than the unleveraged version, QQQ but it is like taking a ride on a helter-skelter. I am also impressed by how well PCT has done and the quality of the investment managers.

Hence my idea to treat QQQ, QQQ3 and PCT as a package and recommend them all as buys together. QQQ provides the steady performance, QQQ3 the thrill ride and PCT brings active investment management expertise into the equation – the three shares become the Holy Trinity of high tech investing if you like. I would be very surprised if a programme of regular investment in all three did not do very well over time.

I really like the idea of regular investing in these three shares and treating severe falls in the underlying index, the Nasdaq 100, as buying opportunities for all three on the reasonable assumption that they will always recover and reach new highs. I had already begun recommending QQQ and QQQ3 in tandem; now my idea is to add PCT to make a threesome, which are always recommended together. You don’t need to wait for me; you could also just buy some every month, quarter, year or whatever. If I am right about the technology revolution all three should do well over the long haul.

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