I am assigning the Invesco QQQ ETF (NASDAQ: QQQ) a negative risk/reward rating based on its single stock and sector concentration risk, a heightened risk of valuation multiple contraction across much of the portfolio, and its decidedly bearish technical backdrop.
Risk/Reward Rating: Negative
On the doorstep of Q1 2022 earnings reports, I downloaded consensus earnings and sales estimates for each company in the Invesco QQQ ETF (a proxy for the Nasdaq 100 index) to construct a baseline for reviewing each company as the year unfolds. The consensus estimates for each company were obtained from Seeking Alpha. My intent was not to analyze and write up the QQQ, but to find attractive risk/reward opportunities amongst the top Nasdaq stocks.
Like most investors I knew that the fund was concentrated, however, it was nevertheless shocking to breakdown and look at the degree of concentration in the portfolio. As an investment professional of 26 years, I have found that we can often get caught up in the day-to-day details and noise of the market and thus risk missing the forest for the trees. This risk can become especially acute following major bull market moves, the length of which can foster complacency and recency bias amongst even the most experienced investors.
Continue reading this report with a stoxdox membership.