Invesco China Technology (CQQQ): A Shining Star in the Constellation of ETFs

We will delve into the world of Chinese sector exchange-traded funds (ETFs) during the next few weeks.

Remember Baron Rothschild’s infamous words: “Buy when there’s blood in the streets, even if the blood is your own.” This 18th-century British banker and politician made his fortune by diving into the chaos after the Battle of Waterloo.

Baron Rothschild flipped the script on conventional wisdom by suggesting that when everyone else runs for the exits, it might be the perfect time to swoop in and make some serious cash. Fast forward to 2024, and China’s tech sector is picking up the pace!

Despite grappling with challenges like China’s “zero tolerance” Covid response and regulatory crackdowns, the region has managed to carve out a market value that could appeal to savvy U.S. investors. One ETF that has been catching some serious attention is the Invesco China Technology ETF (CQQQ), an open fund that provides exposure to the performance of the Chinese tech sector.

What is the investment strategy of this ETF? CQQQ is all about diving headfirst into the Chinese market, with roughly 90% of its total assets in securities, alongside American Depository Receipts (ADRs) and Global Depository Receipts (GDRs) that track its underlying AlphaShares China Technology Index, designed to capture the performance of the tech sector in China. What’s in that index, you ask? Everything from China A-Shares (the big guns listed on the mainland) to B Shares, H Shares, N-Shares (the New York big shots), Red Chips, P Chips and S Chips. You name it, CQQQ seemingly has a piece of almost everything.

While the fund doesn’t diversify in the traditional sense, it’s like a treasure trove of opportunities in the tech world. Covering a broad range of companies, the fund is a playground for tech enthusiasts. By tapping into various segments of the Chinese tech industry, you’re not putting all your eggs in one proverbial basket — you’re spreading your risk like a savvy investor.

There’s more! CQQQ isn’t just about throwing money at random China-based companies; it’s all about the tech scene, which has been booming over the past year. This ETF gives you a cap-weighted index of Chinese tech stocks, where the action never stops.

But let’s not forget that even CQQQ comes with its share of risks! Investors should tread cautiously and keep an eye out for potential pitfalls. From market uncertainties to sector-specific challenges and geopolitical risks, there’s much to navigate in Chinese ETFs. So, before diving in, investors should assess these risks carefully and ensure they’re ready for whatever twists and turns may come their way.

Recently, CQQQ underwent a makeover, reducing its fees from 70 to 65 basis points (bps). Buckle up for an exciting journey through the dynamic Chinese tech landscape. With CQQQ leading the charge, anticipate a compelling investment adventure ahead.

Top holdings in the portfolio include Tencent Holdings Limited (0700.HK, 11.23%), PDD Holdings lnc. (PDD, 10.43%), Baidu Inc. (9888.HK, 8.05%), Meituan (3690.HK, 7.33%), Kuaishou Technology (1024.HK, 5.53%), Sunny Optical Technology (Group) Company Limited (2382.HK, 3.30%), Kingdee International Software Group Company Limited (0268.HK, 2.05%), Sanan Optoelectronics Co. Ltd. (600703.SS, 1.78%), Kingsoft Corporation Limited (3888.HK, 1.73%) and Bilibili Inc. (9626.HK, 1.72%).

The total number of holdings in CQQQ is 150, with the majority in the technology sector (45.21%). The remaining positions are in communication services, consumer cyclical and industrials.

As of February 20, 2023, this fund is down by 6.62% over the past month, 14.49% during the past three months and 34.83% year to date, according to ETF.com.

According to Yahoo Finance, the fund has net assets of $510.68 million and an expense ratio of 0.65%.

Source: StockCharts.com

Overall, CQQQ provides investors with targeted exposure to the Chinese technology sector through a diversified portfolio of securities, offering a convenient way to invest in this dynamic and rapidly growing market. However, investors in this ETF should be aware of associated risks that could influence the fund. 

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to email me. You may see your question answered in a future ETF Talk.