Better ETF Buy Right Now: QQQ vs. SCHG
Key Points
The Invesco QQQ ETF (QQQ) is one of the best-performing funds over the past couple of decades thanks to its heavy tech allocation.
The Schwab U.S. Large-Cap Growth ETF (SCHG) takes more of a fundamentally guided approach to target growth stocks.
SCHG's more modest tech exposure and lower expense ratio gives it a short-term advantage.
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The Invesco QQQ ETF (NASDAQ: QQQ) has become one of the largest ETFs in the entire marketplace thanks to its heavy allocation to some of the biggest tech companies in the world. The "Magnificent 7" stocks and the artificial intelligence (AI) boom have helped make it one of the most popular and best-performing growth ETFs available.
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Over the past 10 years, the fund has returned 625%. Since its launch in 1999, it's gained around 1,600%. And that includes bear markets during the tech bubble, the financial crisis, and the COVID-19 pandemic!
By investing in the 100 largest non-financial stocks traded on the Nasdaq, it's become a growth fund almost by default. It doesn't target growth stocks specifically. A lot of growth companies just happen to list on that exchange.
So let's measure it up against an actual targeted growth strategy. The Schwab U.S. Large-Cap Growth ETF (NYSEMKT: SCHG) is one of the best in this category. It uses a number of fundamental factors to define growth, ensuring a pure play on this theme. And it charges a rock-bottom expense ratio of just 0.04%.
Does that make the targeted growth strategy or the indirect growth strategy the better opportunity today?
Image source: Getty Images.
How QQQ and SCHG are constructed
The Invesco QQQ ETF simply includes the 100 largest non-financial stocks traded on the Nasdaq exchange. Why exclude financials? The Nasdaq-100 index, to which the fund is linked, was created in 1985, and many major indexes were heavily invested in financials. The Nasdaq wanted to create an index distinct from what was already out there and thus decided to exclude this sector to enhance differentiation.
The Nasdaq-100 has typically favored listing more tech and innovative companies, so the growth tilt is likely to be long-lasting. Qualifying components are market cap-weighted.
The Schwab U.S. Large-Cap Growth ETF uses a fundamentally targeted approach. It starts with the 750 largest companies in the Dow Jones U.S. Total Stock Market Index and uses six screening measures to assign each stock:
- Projected price/earnings (P/E) ratio
- Projected earnings growth
- Price/book (P/B) ratio
- Dividend yield
- Trailing revenue growth
- Trailing earnings growth.
Stocks with a growth characteristic are included in SCHG's index. Stocks demonstrating the best combination of growth characteristics make the final index.
QQQ vs. SCHG: Performance and key metrics
| Metric | QQQ | SCHG |
|---|---|---|
| Expense ratio | 0.18% | 0.04% |
| Assets under management | $492.3 billion | $61.1 billion |
| Dividend yield | 0.4% | 0.3% |
| Year-to-date return | +21.1% | +8.4% |
| Five-year annualized return | +18.1% | +16.1% |
| 10-year annualized return | +21.9% | +19% |
| Number of holdings | 102 | 197 |
| Top sectors | Tech (67%), consumer discretionary (18%), telecom (4%) | Tech (45%), communication services (15%), consumer discretionary (13%) |
| Top holdings | Nvidia (8.6%), Apple (7.1%), Alphabet (6.7%) | Nvidia (11.6%), Apple (9.6%), Alphabet (8.4%) |
Sources: Invesco, Schwab.
Overall, there's about 62% overlap between the two funds, suggesting they'll perform very similarly.
The sector compositions and top holdings don't look much different. There's a more top-heavy concentration in the Schwab U.S. Large-Cap Growth ETF right now, but the significantly higher allocation to tech in the Invesco QQQ ETF has clearly driven year-to-date performance. Another big differentiator is QQQ's outsize exposure to several of the memory, storage, and semiconductor stocks that have rallied hard in 2026.
SCHG is the better buy
It would be natural to say that the Invesco QQQ ETF is the better buy, given its performance and reputation. But I'm actually choosing the Schwab U.S. Large-Cap Growth ETF as the winner for a couple of reasons.
First, the outperformance gained from companies more heavily represented in QQQ, such as Intel, Advanced Micro Devices, Sandisk, and Lam Research, is probably unsustainable. There was clearly some catch-up performance to be had from this group, but they are all fully valued at the moment and maybe even vulnerable to a pullback should momentum cool.
The Schwab U.S. Large-Cap Growth ETF has many of those same exposures but is also more diversified across nontech sectors. That diversification could prove advantageous given how far and how fast tech stocks have rallied this year. Plus, the 0.04% expense provides an additional cost advantage.
Both are great ETFs, but the Schwab U.S. Large-Cap Growth ETF offers a better opportunity right now.
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David Dierking has positions in Apple and Schwab Strategic Trust-Schwab U.s. Large-Cap Growth ETF. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Apple, Intel, Lam Research, and Nvidia. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.
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