QQQ vs ONEQ: Is There Any Real Difference Between These ETFs?

For investors looking for a passive way to bet on big tech and the ongoing artificial intelligence (AI) boom, there are ample different exchange-traded fund (ETF) products that can get the job done. Undoubtedly, there are notable differences between tech-centric ETFs. Most notably, some may be pure tech ETFs, while others may only be tech-heavy with exposure to various other sectors of the economy. In any case, investors keen on betting big on tech through an ETF should aim to keep their fees low.

In this piece, we’ll look at two of the more popular ways to bet on tech by way of the Nasdaq. Let’s check in on the two so growth investors can get a better sense of the differences and similarities. As you might imagine, there’s a lot of overlap between the Invesco QQQ Trust (NASDAQ:QQQ) and the Fidelity Nasdaq Composite Index ETF (NASDAQ:ONEQ), which follow the Nasdaq 100 and Nasdaq Composite, respectively. And while investors can fare similarly with either ETF, I do think that one could come out as a clear winner for a certain type of investor. Let’s get a closer look at the two Nasdaq ETFs:

Invesco QQQ Trust (QQQ)

The Invesco QQQ Trust, commonly referred to as the “QQQ” or “the Q’s,” is probably one of my favorite ways to bet on tech. The index follows the Nasdaq 100, which is the 100 largest non-financial firms on the Nasdaq exchange. So, if you seek more exposure to mega-cap tech and the Magnificent Seven but are also fine with some of the non-tech names—think Costco (NASDAQ:COST | COST Price Prediction)—within the list of 100 stocks, the QQQ offers a low-cost way (0.2% total expense ratio) to give your portfolio a bit of a growth jolt.

Undoubtedly, the Nasdaq 100 has outperformed the S&P 500 in recent years by a significant margin. Over the past 10 years, the tech-heavy index is up more than 370%, smashing the return of the S&P 500, which gained 238% in the last decade.

Indeed, the Nasdaq 100 tends to amplify moves made in the S&P 500 in both directions. The most notable bout of underperformance came amid the dot-com bust of 2000-02, which saw the Nasdaq 100 sink far lower than the S&P 500 while taking much longer to recover. If there is an “AI bubble” or a tech-centric correction on the horizon, the QQQ could be at risk of plunging harder than the S&P 500.

Additionally, the QQQ’s exposure to the Magnificent Seven has been a strong point in recent years. However, given its supersized concentration in the names, if the market rally broadens out and the Mag Seven lags from here, the QQQ may be a less-than-ideal pick.

Fidelity Nasdaq Composite Index ETF (ONEQ)

If you’re a bigger fan of broader exposure to the Nasdaq (think smaller-cap names), a Nasdaq Composite Index ETF like the ONEQ may be a better fit for your portfolio.

With over 1,000 holdings (compared to 100 for the QQQ), the ONEQ is a more diversified way to play the index, with a small exposure (3.9%) to financials and other corners of tech. Despite the breadth of names, though, the ONEQ is still a top-heavy ETF, with the top 10 holdings (hello, Mag Seven!) comprising around 60% of the ETF. So, there’s no avoiding a heavier weighting to the group with the ONEQ.

With a similar expense ratio and many of the same large-cap names (there’s substantial overlap) at its core, it’s a toss-up as to which ETF is the better pick for investors. Over the past 10 years, the ONEQ has underperformed the QQQ, with 370% returns vs. 453%.

Over the past year, though, the ONEQ has been steady with QQQ, both up 15.6%.

Of course, there are better ways to bet on a broad market rally than with a tech-heavy ETF. Either way, if I had to choose one, I’d go with ONEQ. Why? The mid-cap holdings may start doing more of the heavy lifting. Further, the financial sector stands out as a top non-tech beneficiary of the rise of AI.