TQQQ vs. QQQ: What’s the Difference?

Compare the pros and cons of these two Nasdaq Index ETFs

Reviewed by Chip StapletonFact checked by Amanda JacksonReviewed by Chip StapletonFact checked by Amanda Jackson

TQQQ vs. QQQ: An Overview

With the Nasdaq soaring to new heights and the technology sector ranking consistently as the market’s best-performing group, it is not surprising that many investors are evaluating technology and Nasdaq-related exchange-traded funds (ETFs).

An ETF is similar to a mutual fund, in that it is a pooled investment that holds a portfolio of securities. Unlike a mutual fund, ETFs can be bought and sold throughout the day on stock exchanges like ordinary shares. This allows investors and traders to get exposure to indexes such as the Nasdaq-100, whether for a long-term buy-and-hold strategy or for scalping day trades.

The Invesco QQQ is an exchange-traded fund (ETF) that is widely held and tracks the Nasdaq-100 Index. Its focus is on large international and U.S. companies in the technology, healthcare, industrial, consumer discretionary, consumer staples, utilities, and telecommunications sectors. The triple-Q was previously called QQQQ.

ProShares TQQQ is also an ETF; however, it is a leveraged product using derivatives and debt to increase the returns to investors. In particular, TQQQ seeks returns that are 3x that of the QQQ.

Key Takeaways

• The Nasdaq-100 Index is composed mainly of technology companies and excludes most financial stocks.
• The Invesco QQQ is a popular ETF that tracks the Nasdaq-100 Index
• TQQQ is one of the largest leveraged ETFs that also tracks the Nasdaq-100.
• QQQ is perhaps best suited as a long-term investment for those who want broad exposure to the Nasdaq-100 Index.
• TQQQ is built for short-holding periods and is best suited for day traders.

TQQQ

Among leveraged ETFs, ProShares UltraPro QQQ (TQQQ) is one of the largest with assets under management of $22 billion as of March 31, 2024. TQQQ is also one of the more heavily traded leveraged ETFs in the U.S. with a monthly trading volume of 57 million (compared with QQQ’s 30.53 million) as of June 25, 2024.

TQQQ carries an expense ratio of 0.98% and a dividend yield of 0.83% as of March 31, 2024.

Due in part to QQQ’s popularity, issuers of leveraged ETFs tapped traders’ thirst for more exotic ways to play the Nasdaq-100. That includes the ProShares UltraPro QQQ (TQQQ). TQQQ’s objective is simple: To deliver triple the daily returns of the Nasdaq-100. So if that index rises by 1% on a particular day, TQQQ should jump by 3%.

Warning

Leveraged ETFs should be used only by experienced investors and traders as losses can be magnified.

TQQQ, as is the case with any leveraged ETF, is an instrument best used over intraday time frames, not as a buy-and-hold investment. Investors and traders who do not consider themselves “active” and “risk-tolerant” should eschew leveraged ETFs.

According to ProShares—the largest issuer of leveraged ETFs, leveraged ETFs come with additional risks and nuances not found in traditional ETFs.

It states: “For any holding period other than a day, your return may be higher or lower than the Daily Target. These differences may be significant. Smaller index gains/losses and higher index volatility contribute to returns worse than the Daily Target. Larger index gains/losses and lower index volatility contribute to returns better than the Daily Target. The more extreme these factors are, the more they occur together, and the longer your holding period while these factors apply, the more your return will tend to deviate.”

Pros

• Triple leverage can provide 3x returns in bull markets

• Good instrument for index day traders

• Very liquid and actively traded for a leveraged ETF

Cons

• Losses are also amplified 3x

• Relatively high fees

• Relatively less tax-efficient

• Only suitable for very short holding periods

• Highly volatile

QQQ

While multiple ETFs offer exposure to Nasdaq indexes, Invesco QQQ (QQQ) is the king of that group. The $280 billion QQQ (as of June 25, 2024) is over 20 years old and is one of the largest plain-vanilla ETFs in the U.S. QQQ tracks the widely followed Nasdaq-100 Index, a benchmark that holds famed technology stocks such as Apple Inc. (AAPL), Microsoft Corp. (MSFT), and Google parent Alphabet Inc. (GOOG), among others.

The highly-rated, large-cap fund was first established in 1999 and works to return results that follow the Nasdaq-100 Index. It has a total expense ratio of 0.20% and returns quarterly distributions to investors with a distribution rate of 0.64% as of June 24, 2024.

QQQ checks many of the boxes long-term investors look for in broad-market ETFs. The ETF offers liquid, cost-efficient exposure to a tech-heavy basket of large-cap, innovative companies without burdening investors with stock-picking or the commitment of a technology-specific ETF.

Tech stocks account for the majority of QQQ’s weight, with consumer discretionary and healthcare names representing another chunk of the ETF’s roster. While the Nasdaq-100 is historically more volatile than the S&P 500, QQQ can be held over long time frames while its cousin, TQQQ is definitely a short-term trade.

Pros

• Broad, low-cost exposure to the Nasdaq-100

• Very actively-traded and liquid

• One of the oldest ETFs in existence

Cons

• Constructed as a trust, may provide less efficiency compared to a true ETF

• Tech-heavy, can be more volatile than S&P 500 ETFs

Special Considerations

The better of these two ETFs will largely depend on your market outlook and time horizon. For long-term buy-and-hold investors, the QQQ is a good choice to get broad exposure to the Nasdaq-100 Index. This may be used in conjunction with other index ETFs to create a well-diversified portfolio for the long run.

For those who believe that the Nasdaq will spike in the short run, TQQQ may be a better option since it provides leverage. However, because of the structure of leveraged ETFs, the recommended holding period is from intraday to only a few days. Moreover, if the index drops, the TQQQ will lose 3x as much as the QQQ. Therefore, TQQQ may be better suited for day traders or swing traders.

Is QQQ Leveraged?

No. QQQ is not a leveraged ETF, therefore it returns the same as the underlying index, the Nasdaq-100. TQQQ is triple-leveraged so that it returns 3x the index. Thus, if the Nasdaq-100 rises 1%, TQQQ returns 3%; if it falls by 1%, TQQQ loses 3%.

What Companies Are in TQQQ?

TQQQ is a 3x leveraged ETF based on QQQ (a Nasdaq-100 Index ETF). Because it is leveraged, it uses derivatives contracts to amplify its returns based on how the index performs. As such, it does not actually hold the shares of any companies. Instead, the unleveraged QQQ itself owns the companies in the index. These companies include NVIDIA, Microsoft, Apple, Amazon, Meta, Alphabet, and Costco.

How Is TQQQ Taxed?

Unlike traditional ETFs, leveraged ETFs like TQQQ have a high turnover and utilize derivatives contracts. These features make them less tax-efficient. In general, taxable distributions from such ETFs are taxed as ordinary income.

The Bottom Line

QQQ and TQQQ are both ETFs that track the Nasdaq-100 Index. QQQ tracks the Nasdaq-100 Index passively, while TQQQ is highly leveraged. TQQQ seeks daily returns that are three times those of the QQQ (before fees and expenses.)

QQQ experiences smaller price fluctuations and is considered to be less risky than TQQQ. Therefore, QQQ is best suited for long-term buy-and-hold investors, while TQQQ is better for active traders.

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