PowerShares QQQ ETF: QQQ's 2014 Third-Quarter Performance And Seasonality

| About: PowerShares QQQ (QQQ)

Summary

PowerShares QQQ behaved better than did the three most popular ETFs based on the S&P 1500's constituent indexes in September, the third quarter and the first nine months of 2014.

None of the four exchange traded funds gained last month, but the derivative of the Nasdaq 100 Index dominated by information technology lost less than did the others.

Neither major central bank policies nor related moves in the euro and U.S. dollar currency pair appears likely to help the fund's performance in the fourth quarter.

PowerShares QQQ Trust ETF (NASDAQ:QQQ) was a powerhouse from January to September, as the ETF ascended to $98.79 from $86.96, a climb of $11.83, or 13.60 percent, on an adjusted closing daily share price basis. During this nine-month period, it beat the SPDR S&P 500 Trust ETF (NYSEARCA:SPY) by 5.44 percentage points, the SPDR S&P MidCap 400 Trust ETF (NYSEARCA:MDY) by an impressive 10.70 points and the iShares Core S&P Small-Cap ETF (NYSEARCA:IJR) by an even more impressive 17.20 points.

Over the third quarter, QQQ outpaced SPY by 4.31 percentage points, MDY by 9.55 points and IJR by 12.12 points. And with each of the four ETFs suffering a swoon in September, it surpassed SPY by 0.63 percentage point, MDY by 3.79 points and IJR by 4.46 points.

Figure 1: QQQ Monthly Change, 2014 Vs. 2000-2013 Mean

Source: This J.J.'s Risky Business chart is based on analyses of adjusted closing monthly share prices at Yahoo Finance.

QQQ behaved much better in the first nine months of this year than it performed in the comparable periods of its initial 14 full years of existence, based on the means calculated by employing data associated with that historical time frame (Figure 1). The same data set shows the average year's weakest quarter was the third, with a notable negative return, and its strongest quarter was the fourth, with an even more notable positive return.

I anticipate the large-capitalization QQQ and SPY may continue to do better in the last three months of the year than will either the mid-cap MDY or the small-cap IJR, because the Federal Open Market Committee might announce the end of its current quantitative easing program, aka QE3+, as soon as October 29 and the beginning of its interest-rate hikes as soon as April 29. Basically, I believe QE has comparatively smaller effects on larger-cap equities, and comparatively larger impacts on smaller-cap equities.

I also expect a narrowing of the performance gap between QQQ and SPY in the fourth quarter, due to the action in the currency market related to the bias divergence in monetary policy that has the U.S. Federal Reserve oriented toward tightening and the European Central Bank oriented toward loosening. This divergence was laid bare at the 2014 Economic Policy Symposium hosted by the Federal Reserve Bank of Kansas City in Jackson Hole, Wyo., in August.

However, the central banks' biases became increasingly apparent even earlier in the year as the euro and U.S. dollar currency pair, or EUR/USD, fell from as high as $1.3992 May 8 to as low as $1.2499 Oct. 3, a tumble of -$0.1493, or -10.67 percent, based on data at StockCharts.com.

This change in the EUR/USD cross and similar moves in other currency pairs indicate earnings in the fourth quarter of U.S. publicly traded companies in sectors with substantial international businesses could be pressured by a strengthening greenback. And, of course, many technology companies fit this description.

In terms of exposure to the tech sector at this time, Invesco reported QQQ's is 59.66 percent and State Street Global Advisors reported SPY's is 19.50 percent.

Figure 2: QQQ Monthly Change, 2014 Vs. 2000-2013 Median

Source: This J.J.'s Risky Business chart is based on analyses of adjusted closing monthly share prices at Yahoo Finance.

QQQ also behaved much better in the first nine months of this year than it performed in the comparable periods of its initial 14 full years of existence, based on the medians calculated by using data associated with that historical time frame (Figure 2). The same data set shows the average year's weakest quarter was the first, with a relatively small positive return, and its strongest quarter was the fourth, with an absolutely large positive return.

Volatility has risen significantly in the market in general during the second half of this year, and QQQ in particular has a history of making big, fast moves. As recently as 2011, the ETF intraday hit its high of the year at $59.83 July 26 and its low of the year at $49.93 Aug. 9, meaning there were only nine trading days between peak and trough.

Disclaimer: The opinions expressed herein by the author do not constitute an investment recommendation, and they are unsuitable for employment in the making of investment decisions. The opinions expressed herein address only certain aspects of potential investment in any securities and cannot substitute for comprehensive investment analysis. The opinions expressed herein are based on an incomplete set of information, illustrative in nature, and limited in scope. In addition, the opinions expressed herein reflect the author's best judgment as of the date of publication, and they are subject to change without notice.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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