QQQ vs. TQQQ: What's the Difference?

With the Nasdaq Composite soaring to record heights and the technology sector ranking as this year's best-performing group, it is not surprising that many investors are evaluating technology and Nasdaq-related exchange traded funds (ETFs).

While multiple ETFs offer exposure to Nasdaq indexes, the PowerShares QQQ (QQQ) is the king of that group. The $52.2 billion QQQ is over 18 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 and internet stocks such as Apple Inc. (AAPL), Microsoft Corp. (MSFT) and Google parent Alphabet Inc. (GOOG), among others.

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 Nasdaq-100. So if that index rises by 1% on a particular day, TQQQ should jump by 3%.

Among leveraged ETFs, TQQQ is one of the largest with assets under management of $1.34 billion at the end of the first quarter. TQQQ is also one of the more heavily traded leveraged ETFs in the U.S. with average daily volume of 2.55 million shares. 

Deciding between QQQ and TQQQ is not a difficult task. It merely requires some self-awareness on behalf of the trader. 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 that do not consider themselves “active” and “risk-tolerant” should eschew leveraged ETFs.

“Due to the compounding of daily returns, ProShares' returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period. These effects may be more pronounced in funds with larger or inverse multiples and in funds with volatile benchmarks,” according to ProShares, the largest issuer of leveraged ETFs. 

On the other hand, 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 58.5% of QQQ's weight with consumer discretionary and healthcare names representing another third 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 TQQQ is definitely a short-term trade.

• While multiple ETFs offer exposure to Nasdaq indexes, the PowerShares QQQ (QQQ) is the king of that group.
• Among leveraged ETFs, TQQQ is one of the largest with assets under management of $1.34 billion at the end of the first quarter.
• QQQ checks many of the boxes long-term investors look for in broad market ETFs.