# Nasdaq ETFs



## Tostig (Nov 18, 2020)

Each has its pros and cons.

QQQ - the grand daddy of them all, traded in USDs, so trading is subject to brokerage exchange fees and performance in Canadian accounts is dependent on the CAD fluctuation.
HXQ, ZNQ - traded on the TSX, unhedged, is dependent on the CAD fluctuation. Barely two years old.
ZQQ,XQQ - traded on the TSX, hedged to the CAD,. performance matches (not exactly) to Nasdaq in USD performance regardless of CAD fluctuation.

XIT - Canadian high tech companies, not Nasdaq. Threw this one in because some people mentioned it in other threads and it has been doing well recently.

HXT - added in error originally. TSX 60. (Removed my moderator on 2020-12-22, thanks).


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## james4beach (Nov 15, 2012)

You listed HXT but I think that's a TSX 60 index, maybe a mistake listing it here


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## afulldeck (Mar 28, 2012)

What about the TQQQ? Not loved any more?


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## Tostig (Nov 18, 2020)

james4beach said:


> You listed HXT but I think that's a TSX 60 index, maybe a mistake listing it here


You're right. I meant HXQ. Don't know how to remove HXT so I've added HXQ.


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## My Own Advisor (Sep 24, 2012)

Don't forget about TEC from TD, although work considering for a low-cost CDN $$ tech fund.


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## moderator2 (Sep 20, 2017)

Tostig said:


> You're right. I meant HXQ. Don't know how to remove HXT so I've added HXQ.


I was able to edit the poll and made this correction, replaced HXT with HXQ


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## Rusty O'Toole (Feb 1, 2012)

afulldeck said:


> What about the TQQQ? Not loved any more?


I trade TQQQ in an American dollar account. My account is up 44.67% since March trading conservatively. Expect to do better next year.


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## james4beach (Nov 15, 2012)

Rusty O'Toole said:


> I trade TQQQ in an American dollar account. My account is up 44.67% since March trading conservatively. Expect to do better next year.


These are great results Rusty, congrats. But one thing that confuses me about all this is that one year ago, you were posting about how you were concerned we were at the tail end of a bull market. As I recall, you didn't want to buy into a passive portfolio because of the fear the market was over-heated.

So you seem to be concerned about stock market risk, while at the same time you are dabbling in a triple leveraged ETF in quite likely the most over heated market sector. With, say, a 10% surprise crash in the NASDAQ (something that could easily happen) TQQQ would immediately be down 30%. Or even a change in the trading pattern of QQQ could result in chronic losses. You could keep doing what was previously working for you, and it may no longer be profitable.

A dramatic flash crash of say 20% in QQQ would reduce TQQQ by at least 60%, possibly even worse if it stops tracking NAV due to a breakdown in arbitrage, with market makers stepping away -- also possible.

Again I just don't see how you can be concerned about stock market risk and, at the same time, trade a triple-leveraged ETF. And remember, TQQQ is not designed to be held overnight (even the prospectus warns against this). It's a vehicle for day trading.


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## Rusty O'Toole (Feb 1, 2012)

A year ago I was concerned the market was overbought and I was right, soon after that the market crashed (January - February). I was completely out of the market at the time and lost nothing and as you point out, am on the record as saying so. Then in March I got a buy signal in my trading system. At the time this seemed ludicrous with the markets crashing, a plague on the loose and all indications that the economy would be locked down at best, and decimated by sickness and death at the worst. But after several years of experience I had confidence in the signal so I took it, and bought into TQQQ very small. Risking no more than 1% or 2% of my account on a stoploss. I pointed this out at the time too.
As all the world knows the market took off and did not look back for the next six months. I gradually legged in as my position became bulletproof (raising my stoploss to a guaranteed profit). But kept a tight stoploss which kept me in and out of the market.
Let's look at the record. If you had somehow timed TQQQ perfectly you would have bought at 32.27 March 23, sold at 175.67 on September 2 for a gain of 444.37%. You could have bought again September 24 at 109.17 and sold October 14 at 157.20 for a gain of 43,99%. Then again October 30 at 113.55 and held to the present time, latest quote being 174.09 a gain of 53.31%.
If you caught all these moves perfectly and were fully invested each time, a hundred dollars would have grown like this: 100 => 544.37 => 783.83 => 1201.70.
I did not catch them perfectly and was never fully invested and only made a fraction of that but still I don't feel I have done badly. I published my signals and method back then too but nobody seemed interested.

I agree with you completely - I did not have any faith in the market this year and that is why I did not make any long term commitments but traded in and out, ready to get flat at the slightest sign of trouble. I believe it is possible to make multiples of what I did this year without taking any serious risks.

Anyone who wants to prove me wrong can download the Think or Swim trading platform for free and paper trade in real time using the method I laid out, and find out if I am lying or not. You can't prove me wrong because I am telling the truth.

As for TQQQ being only for day trading my results say different. You could look at the chart and do your own calculations. There is some drag, it does not make 3X the Qs but slightly less, and this shows up more when the market is falling or flat. But I try to be out of the market at those times. Which brings up another point. As long as I have my stoploss order in, my drawdown is limited and so far in 3 or 4 years my stoploss has never failed to get me out within a few pennies of my desired price. I suppose it is theoretically possible to lose in a flash crash but those do not seem to happen anymore.

If you don't like the TQQQ the same signals and method will work on anything, but not with such spectacular results. I chose TQQQ for two reasons, one is the large percentage moves and the other is that the moves are smooth without too many surprise reversals as you are apt to get in individual stocks anytime bad news, or a bad earnings report hits them. Try it on the S&P or TSX if you prefer.

I don't see what I do as gambling. I see it as playing the odds on a sure thing. To me the real gambler is the investor who watches his account dwindle away week after week and keeps hoping to get even on the turn of a lucky card. I am well aware that we still have not seen a real bear market in 10 years.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> A dramatic flash crash of say 20% in QQQ would reduce TQQQ by at least 60%, possibly even worse if it stops tracking NAV due to a breakdown in arbitrage, with market makers stepping away -- also possible.


TQQQ is trying to do 3X the *daily *return of QQQ. Unless QQQ crashes -20% in a single day, you won't see TQQQ dropping -60% if that drop is spread on multiple days.

Due to compounding and based on the historical volatility in QQQ, a -20% over a month for QQQ could be translated to a -50% for TQQQ, which is not a 3X.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> TQQQ is trying to do 3X the *daily *return of QQQ. Unless QQQ crashes -20% in a single day, you won't see TQQQ dropping -60% if that drop is spread on multiple days.


Sure, QQQ could easily crash 20% in a single day. It's damned volatile.

The other issue is that for it to perfectly track QQQ, someone has to be willing to do the arbitrage. There is a long history now of market makers "stepping away" when crazy volatility hits derivative based ETFs. Previous examples would be VIX and oil based ETFs.

So my guess is that if QQQ has a severe crash/flash crash of say 10% or 20%, you might see TQQQ disconnect from the underlying. *And then* the issuer might terminate the product while it's at a loss (also has happened with previous derivative ETFs) which could actually lock in your loss.

Not only could TQQQ easily have a ~ 50% loss under market turmoil, but you could even be *forced* to eat/realize the loss ... even if you didn't plan on selling it.

You have to look at the history of these kinds of things. This is a very dangerous ETF to hold overnight.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> Sure, QQQ could easily crash 20% in a single day. It's damned volatile.


NASDAQ's largest drop in a day was -12% which happened this year, otherwise -11% in 1987 and -10% in 2000.

Dropping -20% in a day would be one hell of an historical outlier. Though it happened once in 1987 to S&P 500, otherwise it never crashed more than -12%. Same for Dow Jones which dropped -22% in 1987 otherwise -13%.

I agree that we must know what we're doing because TQQQ dropped -75% from top to bottom this year. But it also recovered very quickly.

Personally, I'd hold long a 2x leveraged and sleep at night. I plan to buy HQU.TO if ever NASDAQ drops to an oversold signal.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> NASDAQ's largest drop in a day was -12% which happened this year, otherwise -11% in 1987 and -10% in 2000.


So just in the last 365 days, there was even a 12% drop. What does that tell you statistically? It is basically proof that the worst case drop will be larger than 12%.

I think that a ~ 20% drop in QQQ is very much on the table. Especially considering how over heated it is. There are a lot of itchy trigger fingers on QQQ.



MrBlackhill said:


> I agree that we must know what we're doing because TQQQ dropped -75% from top to bottom this year. But it also recovered very quickly.


And how would TQQQ have performed during QQQ's 87% drawdown in the first dot com crash?

It would have been wiped out mid way through that decline, at $0 NAV. The issuer would have dissolved the fund and forced liquidation.

I agree it's plausible to trade TQQQ and maybe you could avoid trouble, but if we get into a tech bear market, this thing is going to be destroyed. It may even be forced out of existence.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> And how would TQQQ have performed during QQQ's 87% drawdown in the first dot com crash?


I've already calculated this and yes, money invested in early 2000s dropped pretty bad.

But an annual cashflow into TQQQ was pretty beneficial.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> I've already calculated this and yes, money invested in early 2000s dropped pretty bad.
> 
> But an annual cashflow into TQQQ was pretty beneficial.


I'm not sure we're talking about the same thing.

It TQQQ was created back when QQQ was, it would not have survived the tech crash drawdown. It would have lost something like 99.9% of its value, at which point the issuer would have terminated the fund, locking in all losses. They would probably terminate it once it reached 90% or 95% loss or something like that (details will be in prospectus).

If TQQQ was created back in the late 90s, and if someone regularly put money into it, they would have lost *everything* no matter how brave or committed they were*.*

That's very different than if someone regularly put money into QQQ. That would have been just fine.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> I'm not sure we're talking about the same thing.
> 
> It TQQQ was created back when QQQ was, it would not have survived the tech crash drawdown. It would have lost something like 99.9%


I didn't use TQQQ data, I said I've calculated it. I based my calculations on NASDAQ data and if TQQQ would've existed back then it would've dropped -98%.



james4beach said:


> If TQQQ was created back in the late 90s, and if someone regularly put money into it, they would have lost *everything* no matter how brave or committed they were*.*


I've calculated that and that's not true. Only the money spend during the spike was lost. Cash flow prior to that spike and following that spike was well invested.

Here's a case of someone that invested $1000 every 20 trading days (every month) into NASDAQ (1X) vs NASDAQ (3X) from 1995 to 2015.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> I didn't use TQQQ data, I said I've calculated it. I based my calculations on NASDAQ data and if TQQQ would've existed back then it would've dropped -98%.
> 
> I've calculated that and that's not true. Only the money spend during the spike was lost. Cash flow prior to that spike and following that spike was well invested.


I was thinking of the scenario shown in this reddit thread, the first case:


__
https://www.reddit.com/r/investing/comments/hcr47m

Perhaps it depends on the start date, but this guy's calculations show that if one started adding money into TQQQ in 2000, the result today would still be 70% below the starting value. That's a pretty awful 20 year return.

But maybe it works out much better if you start in the late 90s. Was your start date a couple years before 2000?


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## james4beach (Nov 15, 2012)

@MrBlackhill my other point was that the ETF issuer would likely terminate (and liquidate) the fund after it seems enormous losses. They can also reduce the leverage, which amounts to another form of locking in losses. This has happened to many derivative ETFs; why would TQQQ be immune to the same danger?

So you may be correct in theory but I don't think it would work out so nicely in practice. There are swap derivatives under the hood, and there are bank counterparties. Those banks will not like seeing the insane moves in the derivative contracts and will force the ETF issuer to put an end to it, if the declines or volatility is too high.

If TQQQ existed in 1995, I don't think it would have produced the result you expect. The spectacular drawdown / volatility during the dot com crash would likely have forced the ETF issuer, or bank counterparties, to reduce leverage or liquidate the fund. This would have resulted in close to 100% loss for all investors.

Another way to put this is that, _you_ might be cool with extreme market volatility, but the banks on the other end of the derivative contracts are not.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> this guy's calculations show that if one started adding money into TQQQ in 2000, the result today would still be 70% below the starting value


Yes, that calculation is true, but it's saying that the money you invested during that peak is still down -70% as of today, which is true.

In my example though, I've shown the effect of a regular cashflow invested every month. Because as stated by that guy, the money invested at the bottom then 10-folded!

That's why I used an example with a cashflow because that's how an investor should work : regularly adding new money to his portfolio.



james4beach said:


> my other point was that the ETF issuer would likely terminate (and liquidate) the fund after it seems enormous losses. They can also reduce the leverage, which amounts to another form of locking in losses. This has happened to many derivative ETFs; why would TQQQ be immune to the same danger?
> 
> So you may be correct in theory but I don't think it would work out so nicely in practice.


I think you are right about that. But I'm not sure we should see it as a -98% drop, because it's due to the high volatility and the soar and drop. For instance, TQQQ dropped about -75% this year from top to bottom, but the bottom was "only" a -60% YTD.

Actually, this year, TQQQ dropped -75% from top to bottom and also dropped -35% in September. Yet, it's currently at +100% YTD.

I don't know how much should a 3X leveraged ETF drop to trigger the need to liquidate or to reduce leverage.

3X leveraged ETFs exists because they believe that kind of leverage can be sustained. That's why we don't have 4X, or even just 3.5X.

But I agree with you that I wouldn't hold a 3X on the very long term. Though I'd definitely hold a 2X because they are... optimal!


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