Tell Us Something We Don’t Know About QQQ

what happens. And I thought, you know, the cues is a monster ETF. Most people focused on Spy, which I believe turned twenty five recently. That was a whole deal, but the cues is right up there. I mean I put it on the mount rushmore of E t F s and what is it? The cues is the NASTAC one hundred. So this is this is remember the nineties and the tech This is when the Nastac was a

big deal. All these stocks were on there. But the cues has changed since then, although again it's still I think widely used for tech play growth, play um and it trades ton like multiple billions of dollars every day. It's a total stud but it's probably got some things about it that most people just don't know about or take for granted. One being that it used to be very big on tech and it's become less so over time.

So we gave currently on a microphone and center out to the field, and here's what we meant this week on trying the cues at twenty. This is probably the most awkward thing I'm gonna have you just asking them to say the alphabet and stop when they get a QUE. So that's gracious. A B, C, D, E, F G, H I, J K, element O P Q. Over the course of history, the letter Q has taken on many different meanings. Perhaps the most obvious Q is the seventeenth

letter of the modern English alphabet. Some say the form of the letter could have been bay on the island, needle, a not, or even a monkey with its tail hanging down. Others have suggested that the origin is even more ancient, maybe having been born from Egyptian hieroglyphics. But for the trillion dollar exchange traded fund industry, the letter Q takes

on its own unique meaning. You see the Investo q Q Trust Series one e TF, known by its ticker q q Q, is without a doubt, one of the most recognizable tickers around and a bye word for technology investing. Weighing in at just over seventy two billion dollars, q q Q is the world's sixth largest e t F in terms of assets. It's also the second most traded ticker among the universe of more than t f s, and not too long ago, it's celebrated its twentieth birthday.

So I dived deeper into q q q's history and learned how an e t F that was poster child for the dot com boom is no longer really a tech ETF, and how this mammoth of a fund is a window into how presumably passive vehicles are actually living, breathing organisms that are actively changing and evolving with markets. To talk about the origin of q q Q, commonly known as the Queues, I'll have to take you back to the man who created its underlying index, the NASDAC one.

Meet John Jacobs. He was running strategic planning at NASDAC and one of the things he realized was that the brand perception among retail investors was very low about the NASDAK, so we set about trying to figure out how to change their perception, raising awareness and as it can change their perception. One of the ideas we came up with and the strategic planning team that I was running in Nasdaq was um let's come up with a NASDAC branded

financial product. And when we looked around there was something that had been lost a few years early, or the Spider, which was the first g t F on the on the sp so we started following the footsteps to create this one. So the original exercise that became q q Q was more of a branding exercise, much more than trying to build an index business. But along with branding power came a unique nuance with q q q's revenue model. The first e t f s that came out like

the ques, were unit investment trusts. For the expense ratio, there's a chunk that went to the trustee, someone to the adaman, and some money went to marketing. But there's essentially no way to make money if you are the

product sponsor. This made it difficult to sell q q Q over to Power Shares Capital Management, which was bought by Investco in late two thousand and six, the current home of q q Q. To learn about that hesitancy, I spoke to Bruce Bond, who helped start power Shares back in two thousand two the q q Q. It was very difficult to talk invest Goo into actually acquiring the q Q at the time, and the reason it was allowing me to buy at power Shares was that UM. You know, the the q q Q was not doesn't

generate any revenue for the firm that owns it. What it does have those it had a ten basis point marketing fee that allows you to market the fund. And so what we did was when we acquired it, we struck a new agreement with NASAC for the licensing of

the index from Nastac. We we acquired the fund and UM and use the remaining marketing fee to market what We changed the name of the fund from the nastac ONKU to the Power Shares k K and which gave power Shares a tremendous amount of visibility and marketing and advertising power and a built in resource to be able to elevate the name of power Shares in the industry. Since you were some of those marketing dollars were going, I headed over to the Chicago area and Investco's headquarters

in Downers Grove, Illinois. That's how I ended up at the Lincoln Park suit. His name is sounds like a name. Yes, her name is Molika and her name is is something that and the ques do seem to be infused in the Chicago culture. The fund sponsors the Zoo's annual Light Show Spectacular, the current headlining performance at the Lyric Opera

of Chicago, golf tournaments, tennis tournaments. They've even sponsored the first race of the NASCAR Exfinity Series season, a three hundred mile long annual race held at the Daytona International Speedway called the Power Shares q q Q three hundreds. The letter Q even makes a special appearance in the name of Investco's current q q Q strategist. Listen to this. So I am John Frank. I enjoyed Investco in April, and I am the q q Q strategist. So you

missed your middle initial there though I did. It's actually it's actually John Q Frank, which when I was interviewing for the role to become the QKQ strategist, I think my manager really enjoyed that. I think maybe that got you the job. Honestly, yeah, I think I wouldn't. I wouldn't disagree. While q q Q was a poster child for technology investing when it launched, the funds holdings have evolved significantly over time. How much tech there actually is in q q Q is one question that John has

to tackle a lot. And the idea that the cues are pure tech play is almost like a widely believed myth. So a lot of my role is about spelling those myths or trying to maybe gravitate people to what maybe more truth is than what they think. And the idea that six Q is in technology, I think it is is quite a surprise for people. Now. Some of that is due to the gifts classification change, but that's still

only a part of the story. There's a consumer, discretionary, consumer staples, healthcare, so there's a lot of things besides technology in there. And I just going through the second allocation over time. Now, in the height of the tech bubble, there was a greater allocation technology, call it close to pushing almost not quite, and again today we're closer to just about four percent technology. It's it's definitely change over time,

but it's not a percent technology. And I asked John, here are the queues one of the largest e t f s a presumably passive trading vehicle, even though it's been the go to strategy for technology investing and still is today. The makeup of the fund has changed so much over time. Can we really say that q q

Q is truly passive? The debate ten years ago was active for passive and I think today it's much more complicated than that because as a as a fund that uses market KIP, market capitalization is one of its primary determinants of what the weight is in the portfolio. In reality, it could be quite active compared to the market portfolio. Someone might consider at all World Equity portfolio or the SPF A hundred to be the market. Q q Q as a quote unquote passive product is actually quite different

than the market portfolio. And I think that has to do with what's not in the portfolio is what what's in the portfolio. So you see overweight certain names that the portfolio holds but also doesn't hurt hold certain sectors. There's no financials, there's not a lot of energy, not

a lot of utilities. So the end of the day, you have a portfolio that we can behave quite differently than the standard equity markets, and it's still passive and how it's managed, but in reality the exposures you're getting are not or anything but passive. Another myth that John has to dispel surrounding the queues is whether or not the market is ramping up to hit a tech bubble two point oh, especially as the likes of Apple, Microsoft,

and Google have seen prices skyrocket. And to John, the concerns makes sense, but he thinks it helps to look at q q Q today and compare it to the fund back then. So he compares today's market to the actual tech bubble. Let's call it March two thousand. The evaluations are completely different. And one of the things we looked at was just look at the five largest companies in QQQ at that time compared to the five largest

companies today. So one of the things we did was, instead of getting pe ratio for the whole fund, if we just look at those five largest companies in the height of the tech bubble, so call it Microsoft, Cisco, Intel, Oracle, IBM.

As a group, they actually traded at about close to eighty times their market cap over net income a proxy for a P ratio, where today we look at app, Apple, Amazon, Alphabet, Microsoft on Facebook and go back to the end of September, which was really the height of this year, and that group was trading at thirty eight and a half times. So those stocks could have gone up a pent in one day and still would have been trading cheaper from a perspective of mac market captain net income and the

tech bubble. So it's not to say that they are it's screaming value, but they're not anywhere near the tech bubble. So the idea that we're anywhere near the tech bubble hysteria heights is far off. We could get there, but we need a couple hundred percent days or weeks to get to that type of level. But for some investors, the recent run up in technology stocks does bring about deja vu, even if the bubble hasn't quite reached its

popping point. Someone you heard from earlier, NAZDAC founder John Jacobs, says he knows what to look out for. He recalls one morning when his mother called him about a trade she wanted to execute on the fund. Her son Johnny started. Look, my mom in her seventies became a day trader in the queues. So I'm sitting in my office in d C. And my phone lights up and I had this new

feature caller. I d again, it's that a long time ago two thousand and that was my parents home number and my mom, I said, Mom, I was just getting ready to call you. You know, seventy two year old one brokerage account. I said, Mom, I was just getting ready to call you about something. And she goes, never mind that now, Johnny, I want to let you know what I did this morning. I caught up swab and it put her pre market open limit order in on the cues. Because I think it's gonna pop at the

open I want to flip it. I'm like, oh my god, I should have known it was the boom. I should have known it was the bus right then. So here my mom is seven two years old. She become a day trader on margin the pre market in the queues because it's gonna pop, but she wants to flip it again. This is like the same thing when this hueshine boys giving you stock tips, or you know, the kid in the corners telling you about cryptocurrencies. I can recognize the

bubble Caroly and Happy Birthday cues. Welcome back to the show. I guess thank you. Uh. First of all, I just gotta say I love the background on the letter Q. I first I didn't know all that. What is it? The monkey dangling from a tree hanging down. Yeah, it's amazing. But here's the thing I wanted to know, which is why did he have threeques? So originally, actually John Jacobs, who you heard from at the beginning and at the end of the podcast, he wanted a single character ticker.

He just wanted it to be Q. There was the sort of unspoken rule that they couldn't do that, so he was like, you know what. He even printed out like fifty perspectuses with just Q and then fifty perspectuses with Q q Q, and they ended up going with the triple q's. But then, um, it actually went to four ques at one point, so it was q q q Q and then it went back to three ques. And it's funny people say that you can tell when they invested in the queues depending on how they refer

to it. So if they refer to it as the cubes or the quad cues UM. That's because it was when it was the four letter ticker. A lot of people just call it the cues or q q q Y. If you see some of these old heads at the E T F conferences, they will drop a cube's diamonds, cubes, vipers. It's it's evolved a lot since then, but that's how

you kind of know. And they may also put the before ticker like the E E M. That's that's sort of how you know, the sort of old school folks, uh that maybe we're in industry in the nineties, before we started recording, we were joking around about personifying some et F s and for me, a challenge with this podcast and with this project was like, Okay, I'm going to take this fund that's a mammoth in the industry.

Everyone knows about it, sixties six billion and a U m about um second most traded after Spy, so everyone knows about it. How am I going to surprise people about this? Like? How am I going to go out and report on this and find things that people don't know but you did, which was the surprise is that it doesn't have as much tech as people think exactly. Yeah, that that was a huge surprise, and and the way to go about it was that I had to treat

it like a person. I was like, I'm going to go out and like just report of this, like biographical feature on this, hold on, hold on. So personifying e t S is when you cross the line into where I live, which is scary. You don't want to start looking at them as people. I just just giving you a fair warning sort of more like a ghost, I would say, which is even creepier probably, But okay, So

if it's not in tech, what is it in now? Basically, so you have to remember that now is like one hundred is just tracking the one hundred largest non financial companies. So that's and that's really the only thing that's been completely consistent with the funds since the beginning of time. It's it's just not tracking any financials. But yeah, it was about at the height of the tech bubble. It's now around that was dropped in there, right the gigs

what is that? The gigs re classification was something that happened that basically reclassified some of the just traditionally known tech names as being in the communication services like Facebook exactly like some of those mat myths, but but still, I mean the cues really are a poster child for tech investing. They still are. Yeah, And when I was in data, we grappled with whether to call the cues

a sector tech or not. That's a big difference because then you look at tech flows, if the cues are in there or not, it changes the whole number by a lot. And uh, ultimately, I do we do have them in tech for now because we do feel like what are people using them for? And I think most people still connotatively are using them for tech. But you could debate this for a while because right now I think it's tech so shockingly low tech to be in

the tech sector. Um, some of these decisions are tough when you're making the taxonomy in data and so who's been kind of noticed that as an opportunity because if it's like a tech fund that everyone associates with, the tech fund that doesn't have that much tech in it, that seems like a market opportunity for somebody else to come along and say, hey, I'm actually tech. And there are there are a lot of funds that have just

pure tech exposure to them. But you have to remember sort of the liquidity that comes with the Cues, the branding power that it has a familiarity that people have. But again, like the largest it's still pretty fang heavy and fang driven, so people will turn to it for

for exposure to those names. And we had Dan Draper on E T f i Q, which is on every Wednesday at one pm just um and this is last week actually, and we asked him about the Cues you were on with them actually um, and what he said something very interesting because he was trying to sort of give another reason why you'd use this fund besides just

quick tech exposure. And he said that there's a lot of growth in this index and that the R and D as a whole spent on the companies and the Cues was double that of the companies in the SMP five hundred. That's a powerful statement and I think that leads to the the growthy aspect of the cues and ran. Yeah, that's right. That's also something that John Frank who is the current strategist of the Cues, which also when I want to interview him, I was like, how easy is

this man's job? Like he this dude sits there and he manages the cues, which is a super well oiled, like huge, self like running machine. But actually he gets a ton of questions. It's like it's a lot of work. I mean, the research that this guy knows about this fund is incredible. R and D is something he totally talked about. He said. One of the things he does is he compares the NASTAC a hundred one hundred two other indexes whole look at the NASTAC one hundreds higher

R and D spend relatives. So if we look at R and D spending as a percentage of sales for these companies, you're right, Eric, nine percent of sales went to R and D for the NASTACK a hundred constituents. That's more than twice of that for any other comparable index. And that's a big deal in this because everybody is talking about there's some controversy over buy backs, and some people are looking for companies that do more, you know, spending on R and D and that kind of thing

and not just buying back shares. So that's a pretty good selling point, especially for those who are a little, uh not uneasy about buy backs being the source of return. That's actually really intericing um. And you know when a product is a smash hit. Just like the movie business,

it spawns sequels and copycats. Right, So their cues, I like, for one, I'll think of as q q q E, which is the equal way to cuse because the cues does have a lot of allocation to a couple of companies I think Apple might be, So there's equal way to cuse. What are some other examples where they try to steal some of the cues? Um, you know audience with dropping a queue in the ticker to make people think, oh, this is like kind of a tech quli play on

this other area. So e m q q is one that's emerging markets tech Um, there's t q q q I believe, which is a leveraged version of the que. So they do sort of try and piggyback off of this brand because it's such a monster. It's sort of like what other sticks can we come up with here? Exactly?

It's like like the comic book Avengers, you know, all these spinoffs and so just taking a bigger step back, you traveled out to Chicago, right or in the suburbs of Chicago, just talk about being out there at an e t F is shu or what does an E. T. F. Fishuer's office look like and what's going on over there? So it's massive. It's in Downers Grove, Illinois, which is pretty a little ways way outside of downtown Chicago, but it's a huge, huge office oranges everywhere you can see it.

In Dan Draper's office, he has even just like the front of a NASCAR car hood that's orange and I think it has the Cues on it because the Cues sponsored a NASA car race for a while. But it's sort of I mean, when when you go in you do a profile, either on a person or on a fund like this, you have to find like it's footprints everywhere, right, and so it is sort of scattered throughout and I had to sort of track it and follow it throughout Chicago. So I also went to the zoo, as you know,

and you heard I spent a lot of time. They're trying to capture lion sounds and lion roars because they also have some um sort of marketing partnerships with the

zoo there. But but it has made its way into all these different little aspects of the community and sort of social life in Chicago, and I think they also do uh tennis tournament because one time we did an event with power Shares where Bloomberg presented power Shares and at the end of the event they gave away they uh tennis rackets signed by I think Jim Courier, remember him. I think he won two majors. That's to make sure you stayed at the end of the event, of course,

and I thought that was pretty high end. I was really excited. I was not allowed to enter it because I was a presenter. Tennis, Yeah, tennis, golf. Um, let's wait for the Super Bowl partnership. By the way, this has nothing to do with the t s. But you gotta lie in to roar. I mean, did you do that?

I've been at the zoo many times. Those lions just lay there, usually far off behind a log and you can't see them, and the kids like lion linon Lion line line and it's like it's kind of underwhelming, and you saw them roar. How that work out? I just yelled out cues. No, I spent a lot of time at the zoo that day. Actually, it's have to say their patients is the key. I can't believe that it's free. You just really there are people that jog through there,

you walk through there, it's it's absolutely beautiful. Um and the Lions they put on a nice performance for me, they really did. Speaking of performances, how's it done since inception? So it came out March's interesting, yeah, right before the bullber so Um. This is including that it's up three hundred thirty six percent since inception. The SMP five hundred since that same exact point is only up two So it's got our performance by about hundred nine percent since then.

But here's what's wild. Since the financial crisis, so we'll start the beginning of two thousand nine, the CUES has literally doubled the SMP. It's up six percent versus three for the SMP. That's big time, especially for a diversified sort of larger index. But it also speaks to what tech has done in that same period. It's just crushed it absolutely, that's I mean, this is part of the reason it's so beloved. People made a lot of money on it. Carolyne, thanks again for joining us and joining

on behalf of me and the Queues. You're welcome. Thanks thanks for listening to the trillance. Until next time, you can find us on the Bloomberg Terminal, Bloomberg dot com, Apple Podcasts, Spotify, and wherever else you'd like to listen. We'd love to hear from you. We're on Twitter, I'm at Joel Webber Show, He's at Eric Paul Tunas, and you can find Carolyna Wilson at carol E. Wilson. Trillions is produced by Magnus and Rickson. Francesca Levy is the head of Bloomberg podcast. Bye