Animal Spirits Podcast - Talk Your Book: The Mount Rushmore of ETFs

Episode Date: March 18, 2024

On today's show, Ben Carlson and Michael Batnick are joined by Ryan McCormack, Factor and Core Equity Strategist and Paul Schroeder, QQQ Equity Product Strategist at Invesco to discuss: the creation of the Nasdaq 100, where the QQQ ticker comes from, the Nasdaq 100 special rebalance in 2023, and much more! Find complete show notes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation.   Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com Past performance is not indicative of future results. The material discussed has been provided for informational purposes only and is not intended as legal or investment advice or a recommendation of any particular security or strategy. The investment strategy and themes discussed herein may be unsuitable for investors depending on their specific investment objectives and financial situation. Information obtained from third-party sources is believed to be reliable though its accuracy is not guaranteed.   Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Ben Carlson are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits Talk Your Book is brought to you by InvescoQQQQ.Q. Go to Invesco.com to learn more about the NASDAQ 100 ETF, which we're going to talk about on the show today, Invesco.com. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Redholz wealth management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Bridholz wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben.

Michael, I did some research for today's show. We're talking about the QQQQ, the Qs. And, you know, I asked why it was called the QQQQQ and you said, because NASDAQ and didn't even come to me that the Q in NASDAQ. It's got to be, no. Yes. So, okay, so we all know it's been on such a great run, the NASDAQ 100 for the past 10, 15 years or so. Listen to this. So this fund incepted in like early 1999. So it had to ramp up when it first came out, right, for about a year probably, then 80% drawdown. So from inception early 1999 through 2011, the total return for the NASDAQ 100 ETF was 14%. Like 1% annually, basically for almost a decade and a half when this fund launched. The AUM was like $30 billion in 2001. It was still $30 billion in like 2012. So this, this ETF really took a long time to get cooking.

Then since 2011, we're talking it's up 800% or 20% per year. But if you match those two together since inception, the queues are up 9.7% per year, basically the long-term average of the stock market. Yeah, no big deal. Right? So it seems like this 20% per year is just an, unworldly run, and it is. But that's because this fund went an 83% drawdown and went nowhere for well over a decade. I mean, the constituents now are not the constituents that fell 80%.

Fair. The crazy thing to me is, Nvidia in 2020 was not even in the top 10 of the NASDAQ 100, right? Which is a more concentrated in it, because I think it's, what, 50% in the top 10, 70% in the top 25 in this fund? Let me look now. What, like, when was Nvidia below? even like $100 billion, let's say. I'm going to guess 2016. This is a fun game for the audience. Wait while I look at a chart. That's called professional podcasting.

Oh, wow. Wow. Even in 2019, it was under $100 billion. Unbelievable. Now, granted, they went on a big, it went on a pretty steep drawdown. But still, in August of 2019, September of 2019,

this thing was under $100 billion. And now it's $2.15 trillion. Not a bad run in under five years. It really has been a sea change. I feel like the NASDAQ 100. We talked about it a couple weeks ago how it usurped the NASDAQ composite, and I think because it has 100 in the name, it's part of it. Good word.

But it's good usage of the word. Thank you. But the whole market cap thing, the fact that it's more concentrated, means that those winners are going to rise to the top, I think, faster probably, especially since the tech space has had so much going on. Robustness? Yes. But it does feel like it's a 2020s phenomenon where the NASDAQ 100 has become

McCore holding in a lot of people's portfolios. You asked that on the show. That's impressive. To go from satellite to core, you could probably mention how many times it's happened on like one hand, you know? Right. It's in, it's now, it used to be Dow and S&P. And now it's Dow and S&P and NASDAQ 100, I think. That's kind of the, so I know we're stepping on the material. We learned a lot, yeah, we learned a lot about the history of this fund. It's an interesting talk. We talked to Ryan McCormick and Paul Schroeder from Invesco. So here's our talk with Ryan and Paul about the NASDAQ 100. What do you prefer, the Q's or QQQQQQ?

I'm a Q's guy. It sounds better. Here's our talk with him about the Q's. On today's show, we're joined by Ryan McCormick. Ryan is a factor in core equity strategyist in Vesco. We're also joined by Paul Schroeder. Paul is the QQQ equity product strategist. Invesco, gentlemen, welcome to the show.

Thanks so much. Great to be here. Thank you. So over the weekend, you all celebrated your 25th anniversary. So, gentlemen, congratulations on the quarter century, the great quarter century, I should say. it's great to be here uh so i want to start here the qqqqq tracks the nasdaq 100 and when people think about the nasdaq i wonder do they're probably thinking about the 100 even if they don't know it sort of the nascent 100 as like taken over the nasdaq composite which was the big the big boy back

in the day talk to us about the evolution of the nasdaq 100 where did it start and where are we today yeah so you know and i think you're right like for a while there's maybe like a blurring of the lines between the composite and the hundred. But I think when most people are like, oh, well, what's NASDAQ doing today? Like, they're referencing the 100. And it was born back in January of 1985. It was made up and continues to be made up of the 100 largest names listed on the NASDAQ exchange, X financials. So like the question always then is, well, why are there no financials? And on that same day in January of 1985, NASDAQ launched the NASDAQ financials index, which think at the time was the one believed to have maybe more commercial viability. And I think it's

maybe one of those things where it's better to be lucky than good because I always say the NASDAQ 100 is kind of blossomed into this preeminent large cap growth index. And the NASDAQ financials index is one that I really only talk about when I'm making this comparison. Wait, Ryan, so the 100 was born in January and 1985, did you say? What were the biggest names? I'm curious. What were the biggest names back then? Oh, in 95, I mean, in 85? I won't hold you to it. That's a long time.

Yeah. Yeah. So then it was, what, early 1999 that the ETF came out then? Exactly right. Yeah, March of 1999. Okay. Explain to me the ticker, because I don't even know where the Q's thing came from, because that's part of it, too, I think.

Part of the branding is that you can just call it the Q's. Where did that, where did it even come from? And it's, and it's taken on a couple of iterations, right? It was QQQQ, then it went to the quads, four Qs, then back. back to the triple Q's. Wait, wait, well, I'm sorry. I'm sorry. What do you mean it was the quads?

At one point, it was literally the QQQ. Q? Yes, there was a fourth ticker when they moved their listing over to NASDA. I don't know, they either. Huh. So it was traditionally, you know, kind of the four letter tickers. So I think there's a lot of like, there's a lot of debate as to where this Q came from. What I understand is when it was launched by NASDAQ in 1999, they wanted just the single,

the single ticker Q, but that was reserved for New York Stock Exchange List and I think for for companies that were that were Dow eligible. So they were kind of out of luck when it came to Q. Apparently there was a couple of prospectuses that were printed just with the ticker symbol Q. But because at that point, they weren't allowed to have, you know, exchange traded unit trusts with a single ticker, they just expanded it out to QQQ, which was the guidance to have a three-medics. And ETS were so new back then. You didn't have as much thought recognition around the branding behind it. Now there's so much that goes into that,

the branding behind it. It probably wasn't even, it was probably an afterthought, right? Totally. I mean, you know, you look at it, it's a big business trying to figure out like a catchy ticker to, to catch on. And I mean,

back then it was, you know, I mean, these things were just getting off the ground. So I don't think you, I think you're exactly right, Ben, that there's not really the same emphasis of,

you know, can I get a catchy ticker. It was like, oh, I would love to get a single, single letter one and, and get it out there. But so the cues,

like just the letter, whether it's a triple or the quad or whatever, that came because NASDAQ ends with a Q? Is that where it came from? Or is there something more to it? That could be. I mean, I think it was, Q was one of the few single letters that were eligible or weren't taken for companies that were listed on the NISC and kind of Dow eligible. All right. So, well, so where, tell us about the NASDAQ and VESCO relationship.

Yeah. So, I mean, for us, it's a tremendous one. When we look at it specifically with with QQQQ, that was in 2007, kind of that was the the transfer of sponsorship. But since then, you know, it's it's one of our most important partners. I mean, we're here all day at NASDAQ market site. We rang the opening bell to commemorate 25 years of QQ. I mean, it's a fifth largest ETAF by assets behind a couple of S&P 500 tracker ones and a broader. I mean, it's a monster.

Correct. I mean, we always say on the Mount Rushmore of ETS, we. we think we should have a place. No doubt. But since then, we're over 80 ETFs that are, that are NASDAQ index tracking. We're pushing $300 billion in assets. Obviously, Q's being the largest one, but the partnership just has been a great one. And it's very important.

I think like for us and NASDAQ, you know, as we look to push the boundary of ETFs, as pretty much every ETF issuer has looked to do for the past 25 years. I mean, they're a great partner to have, and it's been just an exciting journey. Can you explain to us some of the rules behind the NASDAQ 100? I don't think a lot of people know, like, how it's constructed. So how are there any sort of hard and fast rules where we exclude these sectors or companies or market caps? How does it work? Yeah, so it is the 100 largest company is listed on the NASDAQ exchange X financials, right?

So it will not hold financials. It's a modified market cap weighted index. So you're looking at the largest companies, getting the largest weight. And then, you know, there are some guardrails around just to protect against concentration, right? A couple of kind of two stages of waiting adjustments that they can undertake to make sure that it stays diversified. Well, that's a, okay, I'm curious to hear you say that because 48% of the fund is in the top 10, which has served investors incredibly well. Obviously, you know, past performance, et cetera, et cetera. But what sort of guardrails are you talking about?

Well, so, you know, you can't have one name that makes up too much of the index, right? I think you can't have an issuer weight exceed 24%. Beyond that, there are rules where an issuers, all the issuers with a weight, an aggregate weight of 4.5% or more can add up to 48% of the index. If that happens, they get rebalanced down to 40%. And we saw that just this past year in July when we, you know, know, the NASDAQ 100 underwent its special rebalance. And of course, you know, our NASDAQ 100, you know, they execute those changes as they happen real time with the NASDAQ

100. And I think kind of with that, it's, it's to make sure that these funds or the funds that are tracking the index remain, remain diversified. So I was looking at the history of this fund because it goes, like I said, it goes back to early 1999. So it had a huge run right when it came out, right? And 99 ramped up, then get the dot-com bubble. And then the ask. assets in this fund went nowhere for well over a decade, right? Because, you know, I think it fell 80 plus percent from the highs as the NASDA got crushed from the dot-com bubble. And then it really wasn't, even the 2010s, there was some growth in assets. But it's really in the last, call it five years that you've seen this huge ramp up in assets. And obviously, part of that

is just, you know, these tech companies becoming so huge. But was there ever worry back in the day that this fund wouldn't even really make it? Because, again, the assets kind of staggered. for well over a decade. I don't think there was too much of a concern from those that I spoke to that were there at that point and kind of from the NASDAQ perspective. You know, for them, I think it was always kind of a really important index and one that they were looking from a long-term perspective. But, yeah, I mean, I think you look at the growth of assets that we've seen in the past

five years and it has been pretty staggering, right? And, you know, I think access to this basket of companies, I think just how it's grown in popularity from an investor recognition standpoint, it's been tremendous. I know we're talking to Investco, not NASCAR, but I'm just curious, like, while this is undoubtedly a tech dominated index, there are other names that might surprise people. Costco is a large holding, Pepsi, those are both top 15 or so, you've got Starbucks in here, Mondalays, Marriott, not exactly a tech stock. What's the story of how these companies even get in here? Like, why are they listed on the NASDAQ? So I think when you look at the names that you would expect, right, there's a big pitch,

like, of course, it's the first electronic exchange. So I think you look at some of those like tech oriented or, you know, names, they kind of gravitated. here, right? Of course. And then, you know, from beyond that, NASDAQ has done a really good job of being kind of beyond just an index partner, right? They kind of leverage their data capabilities for, you know, a shareholder perspective. I think it's also kind of like the company that you keep. You look at like brand value of names of some of these NASDAQ 100 listed companies and they're among the worldwide top brands across the board. So, you know, for some companies, it makes sense to be like, oh, I'm a up-and-coming tech company.

Like, yeah, I want to be mentioned in the same breath as Apple, Amazon, and the like, and others that, you know, maybe are embracing the role of technology a little bit more. And, again, like I said, kind of the company that you keep, you know, are interested in seeing similar brand growth. And then, you know, I think as we look to the future, right, you're seeing that line between tech and traditional sectors start to blend. We're like, in 99, it was, if you had dot com and your name, you're a tech company. I don't think that's certainly the case anymore, right?

Everybody is leveraging technology, and now it's not how efficiently you can use tech to your advantage. And I think you've seen a little bit of a blurring of the lines between names and sectors. This might be a difficult question for you to answer. But what do you think it is about the brand? You mentioned the brand name of the cues. There are other large cap tech growth oriented ETFs that don't track one for one, but that are, you know, pretty darn close. and the Q's by far and away are the leader in terms of assets under management, in terms of volume and trading.

How did they get the crown? I think there's something to be said about being first to market, right? And granted, like, you know, there's a lot of ETFs that launched even in the early 2000s and a couple of ETFs that beat QQQQ to the race in the 90s. But I think having that staying power is a big part of it. name recognition, but I think that name recognition got furthered by just the marketing that goes on with with QQQ. Like the NCAA.

I mean, they're everywhere. Everywhere. I mean, you know, the joke is like, I challenge you to go four minutes on CNBC without seeing a Q's commercial, right? And then, you know, beyond that, I mean, it's the NCAA. Before that, it was, you know, there was a Champions League golf event. There's financial literacy programs. And then just in terms of industry conferences, I mean, it's one where Q's,

you know, has had the ability to, to, to, to sponsor a lot of this, this content to, to, you know, ensure that it's, it's front and center. So, you know, after a number of years of that, it almost becomes like second nature where you think of growth and QQ is right there. So I think that, that certainly has helped. I'm curious to hear, is there like a mutual fund equivalent because this has done so really without any benefit from 401ks. I mean, which are predominantly dominated by mutual funds. Is, is it just the ETF? We, there, there are several NASDAQ 100 mutual funds in market now. We recently launched one geared towards 401K's ticker on its IV and QX back in 2020. But it's something where prior to Invesco really taking control of

the cues back in 2007, NASDAQ did a great job of marketing and licensing the index out to several asset managers. So you do see it out there. But I think why we see the cues really be the in the NASDAQ 100 game is because it really is the ETF wrapper of the NASDAQ 100 and all the benefits that that go along with the ETF, intradate trading, tax efficiency, et cetera. Well, you could talk about the liquidity here because I think that getting so big, Michael and I have looked at this study before, you know, the biggest ETFs and how much they turn over. This has got to be one of the most liquid funds that there is, too, correct?

Yes. Yeah, you are correct. It's the second most traded ETF in the world. It's not unusual for it to trade $18 to $20 billion in notional value every single day. So it's only trailing an S&P 500 ETF, which I'm sure you and your listeners could guess which one. But, you know, it's the second most traded, it has the second most active derivatives market amongst all ETFs as well, as you would guess. But it's traded by many different types of investors. Paul, credit to you for not mentioning a competitor.

That was their very well done. So I'm curious, when do you think this whole shift came where the NASDAQ 100 became more of a core holding? Because I have to imagine at first, you know, any sort of sector-like fund was more of a niche kind of satellite approach. And now it feels especially, I don't know, maybe this decade in the 2020s, that it seems like it's more of a core holding for people. Do you get a sense of when that sort of changed? I can guess. You know, I would think early on in my career, like kind of. around the housing market collapse in 08.

I mean, I think it also coincides with where we really started to see ETF assets and even launches ramp up. I mean, I was using it back then in 2009, 2008, and I think that's where you started to see kind of attention on ETFs and certainly the assets across the overall ecosystem pick up. Recently, you know, we've kind of mentioned what we've seen in the past five years. I think just kind of the accessibility of. of the investing public has certainly helped, right? I mean, like, back in 99, you weren't buying a share of cues on your phone.

Right now, you know, depending on where you're using or what brokerage you're using, you can buy a partial share of cues on your phone. I mean, you know, something that was probably unfathomable 25 years ago. Do you have any idea what the sort of breakdown is between retail institutional use of the fund, or is that just way too impossible to track? I think it's, it's, I don't want to say impossible. It's supremely difficult to track, right? Because, I mean, you can go through 13Fs, but, you know, there are certainly, you know,

there are investors out there that will utilize it for their access to large growth and trade it within those filing windows. You have others, like on the model side that I know have used cues and have been using them for quite some time. And then, of course, like the individual investor, like, again, buying shares off their phone. So I think it's, I mean, it's a pretty diverse investor base. I can't give you a true number of the breakdown. I was looking at the Mag 7 today, which are, correct me from wrong, these are the biggest seven stocks in the in the queues as well now. Well, I have the holdings right

here. Microsoft, Apple, Nvidia, Amazon, Facebook. Oh, oh, wow. Broadcom jumped in there. Google's a dual share class. All right, whatever. The point is, or the question that I want to ask you guys is your opinion about what index fund flows are doing to the prices of the underlying components. We're recording this on Monday, March 11th, and I sent this to Ben and Josh. There's a significant amount of dispersion within the Mag 7 today. For example, Facebook is down 5%.

That's news related. Tesla's up 3%. Don't know why. Google's up 2%. Amazon's down 2%. Microsoft is down a percent. I mean, there's a significant amount of dispersion in the index today. Any general thoughts on how money coming into these things might be influencing the underlying components? Do you think it's overblown? Do you think there's something there in between?

There might be something there. I think at this point it's probably a little bit overblown. Like, you know, I talked about the special rebalance in July, right? Which for me was the biggest day of my year. Right. I mean, in the two weeks since it was announced back in July leading up to it. I mean, that was the busiest that I was in all of 2023. And I think about like, you know, the underlying companies that were involved, right? Number one, performance kind of varied depending on the day that you looked leading up to it. And that was, I can't say that that was in their top 10, top 10, top 20, top 50 most important events of the year. My point just being is like, there's a lot more going on under the hood

with these companies where, you know, I think a day or two or even a week of flows pales in comparison to something like an earnings report or, you know, negative news. So maybe at some point, I mean, for most of these companies, it's, you know, within Q's less than a percent of overall shares outstanding, which is not an insignificant number, but So on the margin, I mean, I agree with you with the amount of money coming in. I should say I agree with these are my thoughts. With the amount of money coming in, it's hard to say. that they're not doing anything. But I also, as you stated, I also do think that ultimately

fundamentals are what move stocks over the long term. All the flows in the world can't keep a bad company up and vice versa. Well, it does seem like these rebalances are the things that people that can get a little wonky. I sent Michael one a couple weeks ago that was there was a dividend ETF and people thought these two companies were going to be added and then they weren't. And then those companies, you know, went up or went down based on it. So that's the kind of thing. Inclusion or front running inclusion is obviously a thing. I mean, that's not even up debate. I mean, I think now with the speed of information, right, another, you know, being at the NASDAQ office, another competing index provider, right, very well-known rebalance that

happens, a lot of front running that went on there. I mean, although in talking to traders and some of my colleagues, like the speed of information and just the efficiency of the market makes it even now really, really hard to try to come out on the winning end of that trade. But ultimately, you know again like that's one event in a laundry list of them and you know when we're talking about queues or some of the other launched ETFs that are within the cues family i mean we're positioning it as kind of a longer term core holding right like this is this is an investing tool and those that want to trade it that's that's perfectly fine but even those kind of like noisy events throughout throughout a handful of days or or certain days on the calendar like ultimately we're looking for a multi-year

holding period, which it shouldn't really contribute. I don't think to the overall performance of what you're using this thing for. You mentioned that the special rebalance is one of the busiest periods in your career. Can you talk to us about what exactly that means? Is the special rebalance? Is that more of a reconstitution? Or why would a market cap weighted index need to be rebalanced? Talk to us about that. Just going back to some of those like guardrails that existed, right one of those levels was breached companies that there were over or issuers that were over four and a half percent of of aggregate value they added up to over 48 percent so again to maintain diversification they needed to to rebalance down wait i'm sorry can you unpack that i'm not sure i follow

what you said there yeah so just from the index methodology document kind of the what i was what i was referencing before the guardrails on the nasdaq 100 index right one of those those levels meaning issuers that have an aggregate weight of 4.5% or more in the index. When you say issue, are you talking about a company or something different? So I have to say issuer because there are two share classes of alphabet. I got it. Okay. There are times, right, like a single stock, it means something different than issuer. Why did they do that? Because you pull up the top 10 holdings and it lists Google twice. It's so annoying, isn't it? Well, it's those damn founders. They don't want to share the, the voting. Put it together.

I've put in the suggestion box a number of times and, you know, I, no response. So I'll let you know if something comes up. So how much are those documents that you mentioned, that those are like the index rules? How written in stone are those? If NASDAQ decided, you know, we want to change those rules, how hard is that to do? I don't think it's easy, but it's definitely not without the, you know, it's within the realm of possibility. I mean, there have been been some changes that have gone on in terms of kind of splitting out real estate as an eligible sector. So it is possible, right?

But I think, you know, some of those guardrails that are on, you know, that's in an effort to make sure that the funds tracking those index remain diversified. So, you know, I think those are pretty important. And I think any changes there would not be, would not be undertaken likely. Is there a committee at the NASDAQ or at the NASDAQ 100, similar to ways of your competitors? Not in a similar vein like that, no. Is there anything funky? Like you mentioned, is this a unit trust or the Q's a unit trust? And if so, what exactly does that mean?

What are the shareholders of this thing need to know? So, you know, a couple of, we kind of referenced earlier, you know, an expansion of like the Q's family. So back in 2020, we call it the launch of the innovation suite where we launched another NASDAQ100 tracking fund, QQQM. And then we launched kind of the next 100 down from the NASDAQQQJ that tracks the NASDAQ next generation index. So kind of designed to be more of like a midcap growth exposure. So, you know, within the differences between QQQ and QQM, it was like, well, why would you launch another NASDAQ100 tracking vehicle? That was launched as an open-end ETF. And I think, you know, when we look at the differences between QQQQ and QQM, any unit trust, you can't reinvest dividends at the fund level.

So, for instance, like if Microsoft pays QQQQ a dividend, that dividend has to remain in cash until the distribution date, in which case it goes out. Within an ETF, the portfolio manager can take that cash and reinvest it back into the index until the declared distribution date. So it helps to mitigate some of the cash drag that exists on the portfolio. Well, it's just antiquated fund rules, basically? Yeah, pretty much. And I always try to- The dividend yield is what, is it a percent and a half? That's what I'm saying, you know, not even.

You're not buying it for the yield, right? But in this world of fee compression and performance, I mean, every basis point counts. So, you know, if you've got $10 billion in the Q's, you probably want to know about this. Yeah, more than likely. Most people don't. And then the other major difference is that within the ETF or QQQM, you're going to engage in securities lending, right? So quite simply, you're lending out shares of the companies that you hold, of course, for a fee. That fee goes to offset expenses of the fund and has ultimately led to excess NAV performance.

Meaning, so when you stack up QQQQM against QQQQ, since the inception date, you'll see our performance from from QQQM. And I think, you know, we look at the evolution of the ETF world in 25, over 25 years. Like funds just weren't being launched in that wrapper. It was unit trust. I mean, as, you know, I'll mention the ticker of our competitor. As we know, I was launched as a unit trust, right? I mean, that's, that was the roadmap for getting these funds off the ground.

And over the past 25 years, you know, you launched, you know, the first smart beta ETF, RSP, which is our S&P 500 equal weight. I mean, now what you can. what you can get in the ETF wrapper, I mean, has advanced so much that it felt a little bit like we can bring a product that can help buy and hold investors over a longer term by having a lower expense ratio at 15 basis points versus 20 for QQQ and having these added potential benefits of dividend reinvestment and securities lending. You mentioned that you first started looking at this fund in like 2008, 2009, how shocked,

if we would get in the DeLorean and go back then, how shocked would you have been to learn that the NASDAQ 100 is up like 20% per year since then? I mean, it's just one of the all-time great runs, right? I mean, this is cherry-picking like from the bottom, but it's 20% in change annual return since early 2009. How shocking is that that run we've been on? I have no other words than shocking.

You know, I mean, I was early, I was kind of early on in my career. I had only been in the world of finance for two years. years at that point. And it was like, the world is crumbling around me. I, you know, I wasn't sure that anything was going to give 20% a year for the following year. So, yeah, completely and utterly shocking. And then, you know, you look at the run of some of the stocks in the early tens, even up through like 2022, you know, year end of 2022, the picture was not all that rosy, sticky inflation. Some of these names down in excess of 50%. You know, if you pulled me last year and asked, you know, did you think you were going to get 50 plus percent return in 20, 23?

I would have told you no. So, you know, yeah, absolutely shocked that it's 20 percent per year going back to that. People forget how bad 2022 was. I know. It was like a, I don't want to say a blip on the radar screen, but I mean, it was, it was a tough year pretty much out of the gate, right, into that summer. I mean, specifically those tech stocks, Amazon was in a 50 percent drawdown. So was Google.

I don't think Apple and Microsoft got there, but, but meta was 75% and video was there too. I mean, it was, it was absolute destruction all over the place. So the tech names, I think they bought them on like December 30th, so it was great timing. And then 2023, they had nothing but blue skies ahead of them. 56%. Ben and I were talking about it. Did last year feel like the second best year ever for the NASDAQ 100? Didn't feel like that to me.

It did. I mean, if we go full calendar year, it was the best one. Factually it was. I'm just like the feels. Like when you look, when you think back to 2023, would you have said to yourself, man, that year was insane? No, it's hard to. You know, I think maybe because there was a, I don't want to say overshadowed, but right,

there was just so much focus on generative AI and looking at individual securities within there that like you almost forgot to look at the sum of the parts type thing. Also, because within the context of 2022, if you, or if you net out those two years, yeah, there was the second best year ever, but 2022 was one of the worst years ever. So when you net them out, you know, they could have doubled off the lows, but it's still been flat off the previous two years. Right. It's true. Well, I think if you also take a look at what was going on in the global macro environment

as well, right? You know, you're coming off the largest bank failure that we had seen since 2007, 2008, since the global financial crisis. You're still looking at persistent inflation. here you're looking at a lot of geopolitical uncertainty as well. And then, you know, out of the blue in May, Navidia takes off and leads the tech sector up pretty, pretty well. So, and I think during that entire time, a lot of the conversations that Ryan and I were having was, you know, how real is this run up within AI? Is this going to be a blip in the radar like the Metaverse was back in, you know, 21?

Or is this going to be something that's more sustainable? I think that story is still being played out as we speak today. But, you know, a lot of, similar to, I think, 2020, you know, 2023 showed that, you know, there were several QQQ companies that have been working and innovating and looking for that next place. And then, again, they were at the right place at the right time. Your marketing for this as an innovation fund is pretty broad and kind of all-encompassing. And I made the point to Michael before that.

I think if you wanted to try to figure out how to play the AI, boom, that the NASDAQ 100 is probably the widest net you could cast. Is that fair? So I think, yes, it is fair. This is going to be a more drawn-out answer because, like, we lean on the word innovation. And we're always talking about, like, it's a nebulous term. I mean, in the past three years, it seems like everybody is super innovative because they're changing the way that they do things. And they're bringing the, you know, the most innovative product and all this stuff. I can't stop innovating personally. Exactly.

Exactly. But like from our seat, it's, well, how do you quantify it? And like, you know, how do you quantify the notion that these companies, which are all very well known, right, and widely held, but like how is it that Apple continues to be ahead of consumer trends, consumer preferences and frankly ahead of like fundamental growth? And that extends down as you look at all these other, or a number of other companies within Q's and within the NASDAQ 100. So we think like the start of it is we've noticed that they're spending more in research and development than competing indices. Now, let's take it a step further.

Fine, R&D is well and good and you can throw money at an R&D project. That's great. You're not going to see the results of that for years down the road. Okay, well, what is it like what are they getting there? And what we found is they're really, really active in the patent space. And not like from year to year. I mean, this is looking multiple years back. These companies have filed a significant percentage of global patents when it comes to things like NLP or image recognition, of course, 3D graphics, chatbots. I mean, the list goes on. So the infrastructure here has been developed for the past number of years. And that extends beyond just kind of AI. I mean, you look at stuff like nuclear energy, like bioinformatics, robotic surgery, the list goes on.

But we saw, like, a lot of these AI adjacent or kind of AI-related technology show up in the patent filings for the past number of years. So I do think it casts a pretty wide net on AI. And then, you know, my last point on that would be, you know, we look at overlap between other thematic indices. So in terms of like the NASDAQ 100s overlap with the NASDAQ global big data and AI index is around 60% of index. weight is represented.

So that extends down to other thematic indices like, you know, robotics or semiconductors, et cetera. But I do think like it's a pretty good way to get a diversified look at a number of different themes because these companies, in essence, have diversified their business lines to include a lot of new technologies. All right. You guys are very hard to find. If somebody wants to learn more about the cues, where do we send them?

Yeah. I think the easiest place is investgo.com. slash QQQ. But, you know, of course, we, you know, we try to make ourselves available whenever possible. Ryan and Paul, thank you guys for coming on the show today. We appreciate your time. Thanks so much. Thank you. Okay. Thank you to Ryan. Thank you to Paul. Remember, go check out Invesco.com to learn more about the cues. Email us, Animal Spirits at the CompoundNews.com. I've got it now.