BlackRock Just Declared War on QQQ. Here’s How You Can Collect the Spoils.
Quick Read
BlackRock seems to be going after the QQQ's market share
Its new ETF gives it a fee advantage over the QQQ, and it might be worth switching to
But before you consider switching, there are a few things to keep in mind since it may not be worth it for you
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Everyone knows the QQQ (NASDAQ:QQQ). It has been among the best-performing ETFs to hold over the past two decades, and this third decade is turning out to be better than anyone could've imagined.
You get to hold the tech-heavy Nasdaq-100, and it never seems to stay down for too long. People are spending more time on their screens, AI is taking over more and more workflows, and gigantic investments keep pouring in. The two biggest companies are also set to go public in the near future, so the Nasdaq-100 might get even juicier.
All that said, the QQQ's synonymity with the Nasdaq could be making you miss out on some money.
BlackRock's new ETF is a good QQQ replacement
BlackRock's New ETF, called the iShares Nasdaq 100 ETF (NASDAQ:IQQ) is essentially a shot at the QQQ since it tracks the same index, but does so at a lower price.
IQQ buys you the Nasdaq-100 for an expense ratio of 0.12%. The icing on the cake is that there's a fee waiver in effect through July 2027, meaning you pay just 0.10%, or $10 per $10,000 invested.
The QQQ charges you $18 per $10,000. Even the cheaper QQQM charges $15 per $10,000.
These few dollars may not seem worth your time, but they can add up significantly if you plan to buy, hold, and reinvest. That said, not everyone should switch.
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Is the money worth switching over?
You should look into either the IQQ or the QNDX (NASDAQ:QNDX) if you are building a portfolio from scratch or you're regularly putting money into the Nasdaq-100. The QNDX ETF is from State Street, and it gives you a 0.10% expense ratio off the bat without a waiver.
However, if you already hold a significant amount in QQQ or another Nasdaq-100 ETF, it's not worth switching. If you exchange one ETF for the other, it will incur a tax bill far larger than what any fee savings would save you. However, if you're sitting at a loss, you can still switch.
If you bought QQQ years ago and it's now up 60%, then 60% of the current value is gain. In the 15% bracket, that's a tax bill equal to 60% × 15% = 9% of the original position's value, paid immediately. Fee savings of 0.08% a year would take over 100 years to recoup that. It is, plainly, not worth it.
No one's stealing QQQ's crown anytime soon
Even though there are plenty of Nasdaq-100 ETFs with far lower fees, investors continue to choose the QQQ and pay a slightly higher fee for it.
QQQ is pulling in far more inflows compared to the IQQ. During IQQ's first two weeks, it pulled in $239 million in total, whereas the QQQ pulled in $1-3 billion on most days.
There's a reason so many investors are comfortable skipping the cheapest ETF. The Nasdaq-100 is one of the most-traded ETFs because of its volatility, so its higher liquidity is worth the slightly higher fee for most traders. Even if you are not a high-volume trader, if you're spooked into selling and buying fairly often, you'll fare better with the QQQ.
QQQ has a 52-week average of 10.1 million open options contracts per day. It's a huge options market that no other ETF can replicate because they don't have the liquidity. And this lack of liquidity leads to a self-perpetuating cycle of QQQ dominance.
I would only put new money into cheaper Nasdaq-100 ETFs if your strategy is to buy, hold, and reinvest for the next few decades. Otherwise, the small fee difference is not worth losing sleep over.
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