Thursday, 22 April 2021 08:18

Find the Next Generation of Growth Potential with this ETF

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One of the surest ways to deliver value as an advisor is to help clients identify stocks that are poised to see a step change in their growth. If the last decade has shown us anything, it is that tech companies can scale quickly, and their stock prices may move accordingly. With that in mind, we believe one of the best ways to find the next big thing is to check out the VictoryShares Nasdaq Next 50 ETF (QQQN).

The ETF tracks the Nasdaq Q-50 index, and deliberately invests in the 50 stocks next in line to be included into the Nasdaq-100. This accomplishes two critical tasks. First, QQQN puts client capital into Nasdaq stocks that are well established (ranked 101-150 based on market capitalization in the entire Nasdaq Stock Exchange; ex. Financial), but presumably at an earlier stage with still long runways of potential growth. In other words, high profile companies that could become household names. Since 2007, 110 constituents have “graduated” from the Nasdaq Q-50 (the “next 50”) into the full Nasdaq-100*. Just in the last few years, this includes names like Netflix, Facebook, Lululemon, and Expedia, which highlights the rapid pace of innovation that Q-50 stocks may experience and QQQN seeks to capture with its methodology. In 2020 alone, the graduates included Docusign, Peloton, and Moderna among five other companies. Since 2007, in the 12 months prior to “graduating”, these 110 graduates returned 76.2% on average**. QQQN allows investors access to these quick-growing companies before they have experienced the market appreciation that “graduates” them into the Nasdaq-100. Second, buying into QQQN also helps one diversify out of the hyper-concentrated top end of the Nasdaq-100, which is heavily weighted towards just three stocks as of 2020 year-end. We feel this allows potential returns of QQQN to be more in line with those of companies on the cusp of transitioning between mid-cap and large-cap or mega-cap. Taking these two points in combination, the ETF is quite distinct from strategies that track the Nasdaq-100, and tracks an index that is fully complementary rather than competitive.

Finally, another unique aspect of QQQN is that it rebalances quarterly. This construction allows the ETF to both capture the value of potential hyper-growth names and IPOs more nimbly and drop losers more quickly than half-yearly or annual rebalancers. In summary, QQQN offers unique value and relevant exposure to the next generation of innovators.

 N.b. this content was paid for by Victory Capital and is not FINSUM editorial.

Notes: *Source: Nasdaq as of 12/31/2020; Constituent counts by year include some double-counting. For example, Illumina was originally moved into the Nasdaq-100 in 2008, subsequently kicked back out to Q-50, then moved back in 2013. Of the 106 constituent “graduations,” there were 98 unique companies. In addition to Illumina, International; Green Mountain Coffee Roasters; Hansen Natural; Hologic; J.B. Hunt Transport Services; Netflix; and NXP Semiconductors moved from the Q-50 into the Nasdaq-100 twice during the 2007-2019 period.

** Source: Nasdaq as of 12/31/2020; In the case of the 12 month statistics, names added in 2020 were excluded from averages and medians.

Carefully consider a fund's investment objectives, risks, charges and expenses before investing.
To obtain a prospectus or summary prospectus containing this and other important information, visit Read it carefully before investing.

Investing involves risk, including the potential loss of principal. In addition to the normal risks associated with investing, investments in small- and mid-cap companies and narrowly focused investments typically exhibit higher volatility. International investing may involve risk of capital loss from unfavorable fluctuations in currency values, differences in generally accepted accounting principles, or economic or political instability. Technology companies are often subject to severe competition and product obsolescence. The Fund has the same risks as the underlying securities traded on the exchange throughout the day. Redemptions are limited, and commissions are often charged on each trade. ETFs may trade at a premium or discount to their net asset value. The Fund is not actively managed and may be affected by a general decline in market segments related to the Index. The Fund invests in securities included in, or representative of securities included in, the Index, regardless of their investment merits. The performance of the Fund may diverge from that of the Index.

The Nasdaq Q-50 Index is a market-capitalization weighted index designed to track the performance of companies that are next-eligible for inclusion into the Nasdaq-100 Index. The Index is comprised of 50 securities and reflects companies across major industry groups, except financial companies. Nothing in this illustration should be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes.

VictoryShares ETFs are distributed by Foreside Fund Services, LLC.

Victory Capital Management Inc. is the adviser to the VictoryShares ETFs. Victory Capital is not affiliated with Foreside Fund Services, LLC. Nasdaq is a registered trademark of Nasdaq, Inc. and its affiliates (together, “Nasdaq”) and is licensed for use by Victory Capital. The product(s) are not issued, endorsed, sold, or promoted by Nasdaq. Nasdaq makes no warranties as to the legality or suitability of, and bears no liability for, the product(s).

Top 10 Holdings as of 3/31/2021



Roku, Inc. Class A



CrowdStrike Holdings, Inc. Class A



Fortinet, Inc.



Old Dominion Freight Line, Inc.



Trade Desk, Inc. Class A



Zebra Technologies Corporation Class A



ViacomCBS Inc. Class B



Etsy, Inc.



Garmin Ltd.



Liberty Broadband Corp. Class C



Holdings are as of the date noted and subject to change without notice. 

©2021 Victory Capital Management Inc.


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