It isn’t all too often you hear of a billionaire investor betting big on an ETF. Undoubtedly, much of the value in investing alongside the professional money managers comes from their ability to pick individual winners. In any case, whenever a smart investor places a bet on a broad index, I do think investors should be paying close attention. Undoubtedly, perhaps such a broad vote of confidence in the market or a specific sector is a sign of where the alpha could lie.
The Invesco QQQ Trust might be a better bet if you can’t get enough of the Magnificent Seven
Either way, I think supplementing one’s portfolio of individual stocks with a broad market ETF or even a portfolio of ETFs is a great way to go, especially if you want to participate in the market’s returns but don’t quite have any solid individual investment ideas at a certain point in time. In any case, when billionaire Chris Rokos of Rokos Capital Management picked up the Invesco QQQ Trust (NASDAQ:QQQ | QQQ Price Prediction) last year, I was certainly tempted to opt for the tech-heavy index over the likes of the S&P 500.
Undoubtedly, there’s growing concern that the S&P 500 is getting pricey and will be destined for lackluster returns in the next 10 years. When it comes to the Invesco QQQ Trust, which follows the Nasdaq 100 index, there are arguably even greater concerns about valuation. It’s an even pricier index, thanks in part to its greater exposure to the U.S. tech sector and the mega-cap tech titans that are flying high over AI hopes.
If you are a fan of the mega-cap tech trade and aren’t worried about what could go wrong if the AI trade were to correct, perhaps the Nasdaq 100 might be a way to do better than the S&P over the next decade despite the heftier valuation. At the end of the day, AI is a powerful force that could be more moving for the big AI spenders once that ROI (return on investment) finally does come flowing in.
The Invesco QQQ Trust has been outpacing the S&P. How long can that last?
While Rokos’ purchase of the Invesco QQQ Trust seems to suggest the man is not shying away from the tech sector, as “AI bubble” fears potentially startle other investors out of the tech-heavy Nasdaq 100 or the U.S. markets altogether. Looking deeper into the Rokos portfolio, investors will discover that the popular ETF fits well alongside a wealth of other mega-cap tech names, including the likes of Nvidia (NASDAQ:NVDA), Alphabet (NASDAQ:GOOGL), and Microsoft (NASDAQ:MSFT).
Undoubtedly, the portfolio is taking a big swing on the Magnificent Seven, which I think is a smart way to position going into the new year, one that could see the early monetization of the AI revolution. Given the tremendous overlap with the Invesco QQQ Trust (it’s Mag Seven-heavy), I’d argue that the tech-heavy fund is playing the long game with the AI revolution.
And while time will tell, I do think Rokos’ approach has what it takes to outpace the likes of the S&P 500 or the SPDR S&P 500 ETF (NYSEARCA:SPY) over the long run, even if the AI trade rolls into the odd bear market every so often after a growth scare or a big-name quarterly earnings report that falls well short of expectations.
As for whether the Nasdaq 100 will be a better bet than the S&P 500 remains the big question. Certainly, the Nasdaq 100 leads the way higher, but it also takes on more damage on the way down. For investors comfortable with this trade-off, I do think it comes down to whether one wants more top-heaviness (think Mag Seven exposure) or not.
The bottom line
Personally, I think the Nasdaq 100 is a far better bet on weakness than on strength. In any case, the higher price of admission (33.8 times trailing price-to-earnings) in the Invesco QQQ Trust seems worth paying, in my view, given the added growth and AI exposure you’ll get over the S&P 500. For most investors, I’d say the Nasdaq 100 is more of a solid S&P 500 complement than a replacement.
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