Chipmaker Nvidia (NASDAQ: NVDA) has been one of the hottest growth stocks on the market, with shares more than tripling in the past year alone. But the hedge fund billionaires mentioned below sold their positions in Nvidia during the fourth quarter and reallocated some of their capital to two fast-growing index funds, the Invesco QQQ Trust (NASDAQ: QQQ) and the iShares US Technology ETF (NYSEMKT: IYW).
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Millennium Management's Israel Englander sold 1.7 million Nvidia shares in the fourth quarter, reducing his stake by 45%. At the same time, he increased his position in the Invesco QQQ Trust by 53%, and started a new position in the iShares US Technology ETF.
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John Overdeck and David Siegel of Two Sigma Investments sold 30,663 shares of Nvidia in the fourth quarter, reducing their stake by 5%. Meanwhile, the pair increased their position in the Invesco QQQ Trust by 75%, so that it is now Two Sigma's second largest holding. They also increased their holdings in the iShares US Technology ETF by 214%.
These index funds are particularly attractive because they have outperformed the S&P 500 over the past decade. While the S&P 500 rose 228% over that period, the Invesco QQQ Trust returned 440% and the iShares US Technology ETF rose 528 %.
Here's what investors need to know about these index funds.
1. The Invesco QQQ Trust
The Invesco QQQ Trust measures the performance of the Nasdaq-100, which tracks the 100 largest companies on the Nasdaq Stock Exchange. The index fund is heavily weighted in the information technology (58.9%) and consumer discretionary (17.9%) sectors, the only two market sectors to beat the S&P 500 over the past decade.
The 10 largest positions in the Invesco QQQ Trust are shown below by weight.
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Microsoft: 8.6%
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Apple: 7.8%
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Nvidia: 6.2%
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Alphabet: 5.6%
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Amazon: 5.6%
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Metaplatforms: 4.5%
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Broadcom: 4.3%
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Tesla: 2.5%
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Costco Wholesale: 2.4%
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Netflix: 1.8%
As mentioned, the Invesco QQQ Trust has returned 440% over the past decade, but the outperformance goes back even further. The index has returned 1,370% over the past twenty years, which equates to an annual return of 14.3%. At that rate, $100 a week (about $434 a month) would now be worth $587,500. By comparison, the same amount invested in an S&P 500 index fund would be worth $333,100.
The price for this outperformance was volatility. The Invesco QQQ Trust has a three-year beta of 1.19, meaning the index fund has moved 119 basis points (1.19 percentage points) for every 100 basis point move in the S&P 500. Remember, volatility decreases in both directions. It can lead to significant outperformance when stocks rise, but it can lead to significant underperformance when stocks fall.
The last item on the note is the expense ratio. The Invesco QQQ Trust has a relatively low expense ratio of 0.2%, meaning cancellation fees total $20 on every $10,000 invested. That makes this index fund a very attractive option for investors who are comfortable with volatility.
2. The iShares US Technology ETF
The iShares US Technology ETF measures the performance of 131 stocks in the information technology sector, allowing investors to diversify their money across the consumer electronics, semiconductors and software markets. The index fund is rebalanced quarterly to ensure that (1) no single position is weighted more than 22.5% and (2) the sum of positions above 4.5% collectively does not represent more than 45% of the fund .
The 10 largest holdings in the iShares US Technology ETF are listed below by weight.
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Microsoft: 18.1%
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Apple: 15.5%
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Nvidia: 12.6%
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Alphabet: 5.9%
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Metaplatforms: 3.6%
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Broadcom: 2.9%
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Sales team: 2.4%
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Adobe: 2.1%
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Advanced micro devices: 1.9%
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Qualcomm: 1.9%
The iShares US Technology ETF has consistently outperformed the S&P 500. I already mentioned that it has beaten the market over the past decade, but the index fund has also returned 1,240% over the past twenty years, which equates to an annualized return of 13.8%. At that rate, the $100 weekly investment would now be worth $547,900. The same amount invested in an S&P 500 index fund would be worth $333,100.
As with the Invesco QQQ Trust, the price of that outperformance was volatility. The iShares US Technology ETF has a three-year beta of 1.24, meaning it has risen 124 basis points for every 100 basis point move in the S&P 500. More worryingly, the iShares US Technology ETF has a fairly high expense ratio of 0. 4%. . For context, the average expense ratio for US ETFs was 0.37% in 2022, according to Morning star.
Personally, I like the idea of direct exposure to the fast-growing information technology sectorbut I would rather own the Vanguard Information Technology ETF (NYSEMKT: VGT). Not only has it performed slightly better over the past twenty years, with an annual return of 14.1%, but it also has a much lower expense ratio of 0.1%.
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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool's board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Trevor Jennevine has positions in Adobe, Amazon, Nvidia and Tesla. The Motley Fool holds positions in and recommends Adobe, Advanced Micro Devices, Alphabet, Amazon, Apple, Costco Wholesale, Meta Platforms, Microsoft, Netflix, Nvidia, Qualcomm, Salesforce, and Tesla. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has one disclosure policy.
Billionaires are selling Nvidia stock and buying two top index funds that have beaten the S&P 500 over the past decade was originally published by The Motley Fool
