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The Invesco QQQ Trust (
NASDAQ:QQQ)
and the
Technology Select Sector SPDR Fund (
NYSEARCA:XLK)
are two of the biggest and best-known technology ETFs out there. They’ve also been two of the market’s best ETFs to own over the past decade. With the tech sector surging in 2023, both have posted excellent total returns in 2023 so far, with QQQ up 40.8% and XLK up 41.3%. So, what’s the difference between these top tech ETFs, and is one better than the other?
What are QQQ and XLK’s Strategies?
While these are both tech-centric ETFs, their investment universes are somewhat different. QQQ invests in the Nasdaq 100 Index, the largest 100 non-financial stocks in the Nasdaq (
NDX
). Meanwhile, XLK invests in the technology sector of the S&P 500 (
SPX
).
Below, we’ll discuss how this plays out in each fund’s holdings.
Comparison of Portfolios
QQQ owns 101 stocks, and its top 10 holdings make up 48.4% of the index. Below, you’ll find an overview of
QQQ’s top 10 holdings using TipRanks’ holdings tool.
As you can see, QQQ gives investors exposure to the market’s top mega-cap tech stocks like Apple (
NASDAQ:AAPL
), Microsoft (
NASDAQ:MSFT
), Amazon (
NASDAQ:AMZN
), Nvidia (
NASDAQ:NVDA
), Meta Platforms (
NASDAQ:META
), Alphabet (
NASDAQ:GOOG
) (
NASDAQ:GOOGL
), and Tesla (
NASDAQ:TSLA
).
It’s also important to note that while the Nasdaq is a technology-heavy index, there are also plenty of non-technology companies that comprise the index, and several of these companies can be found just outside of QQQ’s top holdings.
For example, Costco (
NASDAQ:COST
) and Pepsi (
NASDAQ:PEP
) are the fund’s 11th- and 12th-largest holdings, with weightings of approximately 2% each. This isn’t a bad thing, as these stocks have been phenomenal performers for years, but investors should simply be aware that there are some non-tech stocks here, even though "the Q’s" have become synonymous with technology for many investors.
XLK is slightly different. It focuses specifically on the technology sector of the S&P 500, so there are no non-tech stocks within its holdings. It’s also a bit more concentrated than QQQ -- it owns 65 stocks, and its top 10 holdings make up 69.2% of the fund. Below, you’ll find an overview of
XLK’s top 10 holdings.
As you can see, XLK has large positions in some of the same mega-cap tech stocks that QQQ owns, like its massive positions in Microsoft and Apple, which each have weightings of around 22% in the fund. However, look closely, and you’ll notice that many of the other mega-cap tech stocks that QQQ owns aren’t present here in the top 10, or at all, because XLK doesn’t own them.
Why not? Because the S&P index categorizes these stocks differently and does not include them within the technology sector. For example, Amazon and Tesla are classified as consumer discretionary companies, and they make up the largest positions for the
Consumer Discretionary Select Sector SPDR Fund (
NYSEARCA:XLY)
. Meta Platforms and Alphabet are considered communications services and can be found in the
Communications Services Select Sector SPDR Fund (
NYSEARCA:XLC)
.
With these tech behemoths not included in XLK, the fund has room for other large-cap tech stocks in its top 10 holdings, such as Adobe (
NASDAQ:ADBE
), Salesforce (
NYSE:CRM
) and Oracle (
NYSE:ORCL
).
One approach isn’t necessarily better than the other, but QQQ probably gives investors a larger and more comprehensive range of exposure to what many investors think of as ‘technology stocks’ (even though it also includes some non-tech stocks like Pepsi and Costco). XLK has a more narrow definition of tech stocks. It doesn’t include any non-tech stocks, but it’s also missing some of the household names that investors think of when they think of tech stocks. Ultimately, this is the key difference between these two ETFs.
Both strategies yield portfolios with strong Smart Scores. The
Smart Score is a proprietary quantitative stock scoring system created by TipRanks. It gives stocks a score from 1 to 10 based on eight market key factors. A score of 8 or above is equivalent to an Outperform rating. Seven of QQQ’s top 10 holdings feature Smart Scores of 8 or above, while eight of XLK’s top 10 holdings score 8 or better. Nevertheless, QQQ and XLK both have ETF Smart Scores of 8 out of 10.
How Have QQQ and XLK Performed in the Long Term?
Both ETFs have posted dazzling returns over the long term. As discussed above, both ETFs have returned over 40% in 2023 (as of the end of August). Over the past three years, QQQ’s annualized total return has been 9.3%. It has returned 16.0% over the past five years on an annualized basis and 18.6% over the past 10 years on an annualized basis.
XLK has outperformed QQQ on a three-year basis, with a three-year annualized return of 13.4%. It has also beaten QQQ over the past five years, with an annualized return of 19.6%. Even over the past 10 years, it edges QQQ out with an excellent 20.5% annualized return.
Both ETFs have been top performers and have given their investors tremendous gains over the years, but XLK has outpaced QQQ over each of these time frames.
Expenses
These are both very reasonably-priced ETFs. QQQ sports an expense ratio of 0.20%, while XLK is even cheaper at 0.10%. This means that an individual putting $10,000 into QQQ would pay $20 in fees during their first year of investing in the fund, while an individual allocating $10,000 into XLK would pay just $10 in fees.
These are both favorable expense ratios for investors, but over the long run, the XLK investor would save a bit more money. Assuming that each fund returns 5% per year going forward and that the expense ratios stay where they are now, the QQQ investor would pay $255 in fees, while the XLK investor would pay $128 over the course of the decade.
Below, you’ll find a
comparison of QQQ and XLK using TipRanks' ETF Comparison Tool, which enables investors to compare up to 20 ETFs at a time on factors like fees, performance, and more.
Is QQQ Stock a Buy, According to Analysts?
Turning to Wall Street, QQQ earns a Moderate Buy consensus rating based on 84 Buys, 18 Holds, and no Sell ratings assigned in the past three months. The
average QQQ stock price target of $432.87 implies 14.8% upside potential.
Is XLK Stock a Buy, According to Analysts?
Turning to Wall Street, XLK earns a Moderate Buy consensus rating based on 53 Buys, 14 Holds, and no Sell ratings assigned in the past three months. The
average XLK stock price target of $197.70 implies 13.8% upside potential.
Investor Takeaway
These are both top tech ETFs. XLK has slightly outperformed QQQ over the past 10 years and also offers investors a lower expense ratio. Additionally, it offers an exclusive focus on technology stocks. However, I also like QQQ’s more all-encompassing group of technology holdings, which gives investors exposure to leading tech stocks like Meta Platforms, Amazon, and Alphabet, which aren’t found in XLK.
Both approaches have been fruitful over the years, and I find it hard to go wrong with either of these ETFs, and they both continue to look attractive over the long term.
Disclosure
Don’t look now, but the Dow has quietly put together a new three-day winning streak. All major indices closed in the green today, with the S&P 500 and Nasdaq notching back-to-back up-days. The Dow gained 87 points on the sessi
Airbnb, Inc. (
NASDAQ:ABNB
), a leading global travel marketplace that connects hosts and guests, has seen its market value increase by over 70% this year, aided by the strong demand for travel in the post-pandemic world. The company still has a long runway for growth, as evidenced by its potential to gain market share in the fast-growing online travel agency market.
Positively, on September 1, S&P Dow Jones Indices announced that Airbnb will be
added to the S&P 500 Index (
SPX
) on September 18, which would mark an important milestone in the company’s history as it joins a group of elite, widely recognized companies. I am bullish on the prospects for Airbnb, as the company is well-positioned to enjoy durable competitive advantages.
The S&P 500 Inclusion is a Big Win
Companies that are part of the S&P 500 Index usually attract a higher level of institutional investors compared to companies that represent other indexes, such as the S&P SmallCap 600. In addition, inclusion in the S&P 500 is likely to increase Wall Street's coverage of Airbnb, which, in return, will boost the interest in the company among investors of every scale and size. Another major benefit of S&P 500 inclusion is the potential share purchases by index funds that track the broad market.
Although Airbnb and its business practices will be scrutinized widely by analysts, fund managers, and investors when the company becomes part of the S&P 500, a higher level of transparency should be welcomed by long-term-oriented Airbnb investors.
Airbnb Enjoys Multiple Growth Drivers
Airbnb is benefiting from the pent-up demand for travel in the post-pandemic era. There are several reasons to believe Airbnb will continue to see strong demand for lodgings listed on its marketplace.
First, Airbnb will benefit from the strong growth in remote working trends, which opens up new opportunities for professionals to work while they travel. According to data from
Forbes Advisor, 12.7% of full-time employees in the U.S. currently work from home, which is expected to increase to 22% by 2025.
Survey results published by
Forbes reveal that 98% of full-time employees in the U.S. prefer to work remotely at least some of the time, a strong indication of the ongoing transformation of the work model.
This business transformation is likely to boost the demand for long-term stays, and Airbnb is prudently incentivizing hosts to offer discounts to long-term accommodation seekers. In the second quarter, long-term stays accounted for 18% of total bookings, and the contribution from long-term stays is likely to accelerate in the coming quarters. To make the most of the favorable landscape for monthly stays, Airbnb substantially reduced guest service fees for bookings of more than three months as well.
Second, Airbnb has a massive global presence, with the International segment accounting for approximately 50% of total revenue. Given that international travel is expected to remain resilient in the post-pandemic era, Airbnb’s global presence is likely to help the company thrive even if demand in the domestic market saturates in the coming months. The company is aggressively expanding its presence in key markets such as Germany, South Korea, Japan, and Brazil to keep up pace with the increasing demand for lodgings.
Third, Airbnb will benefit from the growing demand for urban stays in the post-pandemic era as people move back into the cities once again. The company offers unparalleled urban stays, making it the clear leader in this listing category.
A Business Conducive to Competitive Advantages
Airbnb faces competition from established travel booking platforms such as Booking Holdings, Inc. (
NASDAQ:BKNG)
and Expedia Group, Inc. (
NASDAQ:EXPE
), which are venturing into the vacation rental industry. In addition, big tech giants such as Alphabet Inc. (
NASDAQ:GOOGL
) and Amazon.com, Inc. (
NASDAQ:AMZN
) are exploring the possibilities of penetrating this sector, which is a potential risk Airbnb investors need to closely monitor.
Despite the intensifying competition in the industry, Airbnb seems well-positioned to enjoy long-lasting competitive advantages. Several factors help the company build competitive advantages.
First, Airbnb has scaled aggressively in the last few years to emerge as the go-to short-term vacation rental platform in the world. The company now connects more than 4 million hosts with hundreds of millions of guests. For context, in 2022, Airbnb reported 393.7 million nights stayed, which goes on to highlight the massive scale of the company. This scale, in return, has created a network effect where both hosts and guests consider Airbnb as their preferred choice.
Second, Airbnb is home to various types of accommodation options ranging from luxury getaways to shared apartments, which helps attract a diverse customer base. This diversified offering is helping the company gain an edge over its competitors as the platform has emerged as a one-stop shop for accommodation hunting.
Third, Airbnb’s online marketplace offers a seamless experience to both guests and hosts, which has been enabled by strategic investments spanning over a decade. Flexible location search tools, advanced pricing tools for hosts, and AI-driven customer experience management tools are some of the unique features offered by Airbnb to improve the user experience for both parties. It would take years for a competitor to replicate these features, which gives Airbnb a first-mover advantage.
What is the Prediction for ABNB Stock?
Based on the ratings of 31 Wall Street analysts, the
average Airbnb stock price target is $149.81, which implies upside potential of just 1.7%. Although Airbnb may not be cheaply valued today, the company still has a long runway to grow, which makes it look attractive for long-term growth investors.
The Takeaway: Airbnb’s Growth is Far From Over
Airbnb still has room to grow and the company is capitalizing on the opportunities available in the post-pandemic era. The company seems fairly valued today, and investing in a fairly-valued growth company is likely not a bad proposition for investors with an extensive investment time horizon.
Disclosure
The NASDAQ 100 After Hours Indicator is down -13.41 to 15,448.46. The total After hours volume is currently 79,873,312 shares traded.The following are the most active stocks for the after hours session: Global Net Lease, Inc. (GNL) is -0.002 at $11.31, with 5,462,655 shares trad
U.S. stocks ended the session higher and the dollar retreated on Monday, as investors looked ahead to Wednesday's inflation data, while the Bank of Japan suggested it could be moving toward closing the door on an era of negative interest rates.
Oracle narrowly missed market expectations for first-quarter revenue on Monday, as companies pared back spending on cloud services due to an uncertain economic outlook.
The Nasdaq closed sharply higher on Monday as Tesla surged on optimism around artificial intelligence and investors awaited inflation data due later this week.
The Nasdaq closed sharply higher on Monday as Tesla surged on optimism around artificial intelligence and investors awaited inflation data due later this week.
Wall Street stocks rose on Monday, with the Nasdaq jumping over 1% as Tesla surged on optimism around artificial intelligence and investors awaited inflation data due later this week.