VIDEO: ETF of the Week: QQQM

Chuck Jaffe: One fund, on point for today. The expert to talk about it. This is the ETF of the Week!

Welcome to the ETF of the Week, where we examine trending, new, newsworthy, unique, and intriguing exchange-traded funds with Todd Rosenbluth, who's the head of research at VettaFi. And at VettaFi.com , you'll find all the tools and research you need to become a savvier, smarter investor in ETFs.

Chuck Jaffe: QQQM, the Invesco Nasdaq 100 ETF. This is a fund that has been, well, riding the wave. It's well thought of by everybody. Why is it the ETF of the Week now?

Todd Rosenbluth: A few reasons. So, QQQM just hit $100 billion in assets under management. It also has received new competition from iShares and from State Street that now offer slightly cheaper products. I think a lot of people are focused on the Nasdaq 100 because it added exposure to SpaceX, but actually SpaceX is quite small, and what we've seen is other companies outside of the traditional Mag Seven have gained traction.

Micron is now a top-five position overall. The Nasdaq 100 is performing great. This is a low-cost, liquid way of getting exposure, despite new competition.

Chuck Jaffe: At the same time, you know, we've been talking a lot about actively managed ETFs. This is the classic "just buy the index." And it's a volatile index. Again, this scores well—if you're looking at Morningstar's data, five stars; if you're looking at Lipper data, it gets the highest rating in everything but preservation of capital, where it's in the middle of the road.

And by just about every measure, it's hard to be disappointed with this fund. How should somebody be using it? And if they don't have this fund yet, do you want to add what amounts to a core fund to a portfolio that has other stuff in the core?

Todd Rosenbluth: So, a few things here. QQQM, for many people, has been the growth-oriented part of their core. So, you might own exposure to the S&P 500, which is a mixture of growth and value stocks. QQQM, because it excludes financials and because it's market-cap weighted, it's very growth-oriented. Heavy exposure to technology. More modest exposure to consumer discretionary and communication services stocks.

This is a growth portfolio of large-cap companies. What we've found is that people have been continuing to add exposure to it as the market has climbed higher, and even when there was hesitation about the Mag Seven, people put money into QQQM. It's been quite popular this year, and it's worked out.

You mentioned it's index-based. This index-based strategy is outperforming most of the active products. In fact, as you noted, five-star rated by Morningstar, which has mostly actively managed products within their universe. It scores very well according to Lipper. Again, for the performance attributes, it's hard to find a fund that's actively managed that has outperformed the Nasdaq 100 over the longer term. It's just hard to do, because the mega-cap stocks continue to climb higher.

Chuck Jaffe: There are probably not going to be many investors out there who don't have a pretty significant weighting to technology. How do you add this to a portfolio and not be overweight that much more, because it's the tech-heavy index, et cetera, and that is something that some people at least want to guard against right now?

Todd Rosenbluth: You're right. So you'd have to go into QQQM or have to retain exposure to QQQM because you are confident in the growth prospects of technology and technology-adjacent stocks. So, this still does have heavy exposure to Apple and Microsoft. I mentioned Micron being a top 10 position. It also has exposure to Alphabet and Meta, which are not technically technology stocks according to the classification system, but many people think of [them as such].

You would want to own this fund if you were prepared to overweight exposure to those sectors. If you think the market is going to be more value-oriented, and you and I have talked about some value strategies in the recent past, this is not the strategy for you. It does not have any exposure to financials.

It has limited-at-best exposure to other traditional value sectors like energy or consumer staples, although I believe Walmart is within this portfolio, as is Pepsi. But you're not going to find the same exposure that you would within the S&P 500. So you have to have confidence in the growth prospects for mega-cap stocks to own QQQM and to be adding to it.

But we think this can make a lot of sense if you believe in the second half of the year that those stocks are going to continue to climb higher, that the rally still has legs. QQQM can be a great, relatively low-cost product to get exposure.

Chuck Jaffe: Now I want to talk about somebody who I know does not necessarily believe that the rally has legs—or that's actually a little unfair. He believes that this rally has legs for a while, but I spoke recently with Zach Johnson from Stack Financial Management. He's one of many technical analysts whom I talked to, and he believes we've got a market that is building—the phrase he uses is "generational bear market," and he talks about what could happen and when it could happen.

But what he said is a generational bear market is one where we're going to see the S&P 500 potentially get cut in half, and the Nasdaq could be down as much as 70%. So, given that there might be that concern out there, we don't normally ask this, but do you enter something like this with a sell discipline in mind, or a "if I'm adding this, what would be my sign of trouble?"