QQQ vs. XLG: Which Concentrated ETF Has More Upside from Here?

If you’re like many growth investors who want more exposure to tech and the ongoing artificial intelligence (AI) revolution, the S&P 500 or total stock market index exchange-traded fund (ETF) may not cut it for you. Though it’s wise to have most of your passive portfolio in such a broad-based fund, some of the younger, more aggressive investors out there who want more cash invested in the “new” economy names may wish to future-proof by considering one of the thematic tech ETF offerings.

Indeed, there are a lot of active and passive tech options to pick from. Some are pure-play tech bets, while others are just overweight in tech relative to the S&P 500. In this piece, we’ll compare and contrast two very popular funds in the Invesco QQQ Trust (NASDAQ:QQQ)—which tracks the Nasdaq 100—and the Invesco S&P 500 Top 50 ETF (NYSEARCA:XLG), which invests in the top (and largest) 50 names in the S&P 500.

Though neither fund is tech-centric, they are quite heavy on the information technology exposure, with around close to half (42-54% at any given time) dedicated to the sector. Indeed, these are two very different concentrated ETFs with ample overlap. However, I believe one of these Invesco ETFs stands out. Let’s dive in:

Invesco QQQ Trust

This is a fund that needs no real introduction. It’s the ETF to own if you want to bet on the Nasdaq 100, an index that’s tended to outrun the broad market in tech-led bull markets.

Though I previously cautioned that the QQQ amplifies moves on the way down as well, I do think it’s a great addition to any passive portfolio seeking more exposure to the Magnificent Seven. Indeed, many tech pure-play ETFs don’t even provide as much exposure to these seven high-tech heavyweights as the Nasdaq 100.

In any case, the main takeaway is that the QQQ limits itself to Nasdaq-traded stocks. That means you’re missing out on some of the pristine blue chips of the S&P 500 that are NYSE exclusives. Unless you’re a dedicated fan of the holdings, I see few reasons to prioritize one exchange over the other. As such, the QQQ, while a decent tech-heavy ETF, may fall short compared to its XLG counterpart.

Invesco S&P 500 Top 50 ETF

Indeed, you’ve probably heard about some investors who are nervous about the top-heaviness of the S&P 500. With the XLG, you’re pretty much doubling down on the top 10% of the index! If you’re a big fan of the mega-caps and don’t care so much for the bottom 450 of the S&P 500, the XLG may be the better bet for you.

With slightly more sector-wide diversification and a greater preference for larger market caps, the XLG looks like it could hold up better than the Nasdaq 100 in the face of market volatility, especially tech-induced market volatility. Of course, with all the weighting in mega-cap tech, the XLG is bound to be a bumpier ride than the even broader S&P 500.

If you think bigger is better when it comes to businesses and want to take the other side of the trade as other investors go for an equal-weight version of the S&P 500 to reduce exposure to the behemoths, the XLG is a great bet. Between the equal-weight, the normal S&P 500, and this “S&P 50” fund, I must say I favor the latter. Though a lot of overlap between this fund and the QQQ, I must say that the Top 50 stands out as the better option for most.

You’re getting more than just the top tech titans; you’re also getting exposure to some worthy financial firms like Berkshire Hathaway (NYSE:BRK-B), 2.8% weighting, JP Morgan Chase (NYSE:JPM), 2.5% holding, and the “Big Two” credit card firms (just under 4% combined). These are the firms you’d want exposure to as AI revolutionizes the field of finance.

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