QQQ and VOO: Do You Really Need Both?

The enthusiasm surrounding Invesco QQQ Trust QQQ, the exchange-traded fund built around a hand-picked group of the 100 largest nonfinancial stocks listed on the Nasdaq exchange, is easy to understand. Thanks to its hefty exposure to the technology and technology-related stocks that have dominated the market, the fund has racked up chart-topping returns over the trailing 10- and 15-year periods. As a result, the fund has collected more than $80 billion in net inflows over the past five years, which ranked eighth among the bestselling funds over that period.

I’ve heard from many investors who are wondering about the fund from a portfolio perspective, asking if it makes sense to own both Invesco QQQ and a broad market index fund, such as Vanguard S&P 500 ETF VOO. In a nutshell, the answer is probably not. I’ll take a closer look at why.

Holdings Overlap for QQQ and VOO

The two benchmarks are fundamentally different in some ways. Vanguard S&P 500 ETF is more of a true index fund, meaning that it follows a rules-based methodology and aims to track its benchmark as closely as possible. (Purists might quibble that the S&P 500 isn’t a completely unadulterated market-cap-weighted index, as its constituents must also meet other criteria, such as trading volume, liquidity, a positive earnings number based on the sum of the past four quarterly financial statements, and positive earnings for the most recent quarter.)

Invesco QQQ follows a much looser approach. First, holdings must trade on Nasdaq, which isn’t a fundamental investment factor but merely a product of wherever the company’s C-suite decides the shares should trade. Second, the committee that oversees the Nasdaq-100 Index has made several adjustments to its constituent weightings to avoid overly large concentrations in stocks such as Microsoft MSFT, Apple AAPL, Alphabet GOOG, and other members of the Magnificent Seven.

More recently, the committee has proposed several changes that would make it easier for potential IPOs such as Anthropic and SpaceX to make their way into the index.

Notwithstanding these differences, there’s a considerable amount of overlap in holdings for the two funds. The exhibit below shows 10 of the largest holdings that appear in both funds. Both are dominated by stocks that led the market until recently, including all of the Magnificent Seven as well as Broadcom AVGO, a leading maker of semiconductor chips and infrastructure software.

There’s a lot of overlap in the rest of the two funds’ holdings as well. As shown in the exhibits below, only about 4% of Invesco QQQ’s holdings (based on their asset weightings within the portfolio) aren’t also held by Vanguard S&P 500 ETF. Because Vanguard S&P 500 ETF is more broadly diversified, nearly half of its portfolio doesn’t appear in Invesco QQQ.

Similar Performance, but More Downside Risk

Not surprisingly, similar holdings mean similar performance. Over the past three years, Invesco QQQ had a correlation of 0.88 when measured against major index funds such as Vanguard S&P 500 ETF. In other words, the Nasdaq-100 Index offers some diversification benefits, but they’re relatively modest.

While generally moving in line with the overall market, Invesco QQQ has been subject to a greater level of drawdown risk. The exhibit below shows its performance in several previous market corrections. During the tech, media, and telecom correction that started in March 2000, for example, it suffered cumulative losses of nearly 77%, compared with about 33% for the overall equity market.

More recently, Invesco QQQ lost 22.8% in early 2025, compared with about 18.6% for the Vanguard fund.

Invesco QQQ’s heavy level of exposure to technology- and communications-related stocks, which often totals more than 60% of assets, is the main culprit. And its exposure to chip stocks, such as Nvidia NVDA, in particular, can be a liability at times. During the DeepSeek-driven market selloff in January 2025, for example, the fund suffered a nearly 3% one-day loss, roughly twice that of the overall equity market.

Valuation risk is another reason behind Invesco QQQ’s more pronounced vulnerability on the downside.

As shown in the exhibit below, Invesco QQQ’s holdings trade at steeper valuations based on traditional valuation measures. They also traded at slightly higher prices relative to Morningstar’s estimates of their underlying fair values as of this writing.

Conclusion

At the end of the day, Invesco QQQ Trust doesn’t offer a lot of diversification benefits to investors who already own a broad-based equity index fund. Instead, the fund is better thought of as an active bet on the ongoing dominance of technology and artificial intelligence stocks, which have already shown signs of weakness.

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