Before you buy the Invesco QQQ ETF, here are 3 others to try first

Investors looking for a quick and easy way to invest in the world’s largest and fastest-growing technology stocks flocked to Invesco QQQ Trust ETF (QQQ 1.19%).

The ETF is tracking Nasdaq-100 the index, which consists of the largest non-financial companies listed on Nasdaq stock exchange. Historically, the Nasdaq is the preferred stock market for technology companies, so it should come as no surprise that the majority of the index is made up of technology stocks.

The Invesco fund outperformed dramatically S&P 500 index over the past decade, producing a total return of 435%, compared to just 248% for the broader index. Still, investors should consider a few other options before putting their money into the popular ETF. Here are three to try.

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1. QQQ’s younger sister

Invesco launched a new ETF in 2020 called Invesco Nasdaq 100 ETF (QQQM 1.19%). It tracks the same Nasdaq-100 index as QQQ, but offers investors a 5 basis point discount on the new shares over the older ETF.

Where QQQ charges 0.20% of assets each year, the new Nasdaq-100 ETF charges just 0.15%. While that difference might not seem like much, it adds up over time and there’s no reason for investors to leave money on the table.

Invesco doesn’t offer investors a lower-priced ETF out of the goodness of its heart. The company faces a lot more competition than it used to when it launched QQQ Trust in 1999. Although it could easily accumulate assets under management at any price in the early 2000s, it has to offer much more competitive prices today.

But there are billions locked up in the older ETF. Investors with substantial unrealized capital gains may be willing to give up a few basis points to delay taxes by not selling. In addition, the larger asset base makes the fund more liquid, which is attractive to large investors or frequent traders.

If you’re looking to buy and hold an ETF that tracks the Nasdaq-100, however, QQQM is a problem compared to QQQ.

2. A contrarian ETF focused on fundamentals

If you take a look under the hood of the Invesco QQQ Trust, you’ll find a highly focused portfolio. The top 10 holdings represent over 50% of the entire fund. Additionally, many of the largest holdings trade at high prices that are not aligned with their fundamental financial performance.

One way to offset the high concentration and prices found in QQQ Trust is to invest in Schwab Fundamental US Large Company ETF (FNDX 0.89%). The ETF tracks an index that ranks and weights securities based on fundamentals – adjusted sales, operating cash flow and cash returned to shareholders. The result is a much less concentrated portfolio and an overall lower price to fundamentals.

The Schwab fund has a P/E ratio of just 19.4 times, compared to the Invesco fund’s 39.5 times P/E. While it still has substantial stakes in some of the biggest names in the Nasdaq-100, it also integrates higher-value stocks into its portfolio. In fact, the emphasis on fundamentals skews the fund more toward value stocks than the Invesco fund focused on growth stocks. But this diversification can pay off for long-term investors.

The Schwab ETF has an expense ratio of 0.25%, higher than the Invesco QQQ ETF. But the contrarian play could pay off for patient investors.

3. A low value ETF

The biggest attraction of the Invesco QQQ Trust ETF is its strong track record of returns. But one group of stocks has an even better track record than the large-cap growth stocks found in the Nasdaq-100. Small-cap value stocks have historically produced the strongest returns of any segment of the stock market. The S&P 600 the index, which leans toward small-cap value, has outperformed the Invesco QQQ Trust ETF since its inception in 1999, despite the Nasdaq ETF’s incredible performance over the past decade.

Data by YCharts

The Avantis US Small Cap Value ETF (AVUV 1.49%) it is one of the best ways to invest in small value stocks. Rather than blindly investing in all small-cap stocks that trade at a valuation in the lower half of the small-cap index, the fund analyzes stocks based on profitability to weed out those that may be value traps. It then invests in the remaining companies based on market capitalization. With over 700 stocks in the portfolio, no investment represents more than 1% of the fund.

While the Avantis fund is technically an actively managed fund, it shares many more characteristics with passive indexing than active management. The strategy has an excellent track record of performance based on the founder’s previous experience at the investment firm Dimensional. The Avantis fund has almost doubled the performance of its benchmark since its inception in 2019.

For long-term investors who want exposure to a part of the market that can deliver stronger returns than the S&P 500 or Nasdaq-100 for many years to come, the Avantis US Small Cap Value ETF could be a great option.