iShares’ New Nasdaq-100 ETF May Be Cheap. But IQQ Is a Giant Red Flag That the AI Bubble Is Getting Ready to Burst.

It is a sign of the times when BlackRock, the kingpin of the ETF world, decides to offer an ETF that is a clone of the Invesco QQQ Trust (QQQ). 

As we see here, QQQ, which debuted way back on March 9, 1999, is now a $478 billion ETF, one of the largest on the planet. iShares is an ETF dominator, but its market share of this decade’s protagonist, the Nasdaq-100 Index, is almost nonexistent. It debuted the iShares Nasdaq Top 30 Stocks ETF (QTOP) and the iShares Nasdaq-100 Ex Top 30 ETF (QNXT) during October 2024, designed to capitalize on the dual-personality of QQQ. 

QTOP features its top 30 stocks which have led the charge, while QNXT focuses on all the rest. You can see that QNXT has continued to lag QTOP and QQQ. 

iShares is looking for a large slice of the pie, debuting its new ETF this week, the iShares Nasdaq 100 ETF (IQQ). IQQ will patrol the same neighborhood as QQQ does, and comes to market with a 0.10% expense ratio. That undercuts QQQ’s 0.18%, but matches that of State Street’s Portfolio SPDR Nasdaq 100 ETF (QNDX), which hit the market just two weeks ago. QQQ can charge more not simply due to its much longer tenure, but also because of its very active options market. 

Still, when an asset manager uses its massive scale and well-earned brand recognition in the ETF space to launch this specific fund right now, I can’t help but think back to QQQ’s inception in 1999. It rocketed higher for a year, then fell by 75%, failing to recover its initial listing price for more than a decade. 

So what bubble is IQQQ’s pending debut actually pointing to?

The most immediate answer can be found in the evolution of the exchange-traded fund business itself. The industry is currently experiencing a total saturation of core asset indexing. There is zero functional difference between the underlying corporate holdings of IQQ and the long-established QQQ. Both manage identical pools of the hundred largest non-financial giants on the Nasdaq exchange. 

This product launch highlights the complete dominance of a corporate duopoly. BlackRock and Vanguard have spent a decade systematically vacuuming up the vast majority of global passive capital inflows, leaving the rest of the asset management industry starved for assets, relatively speaking.

By introducing IQQ, BlackRock is supplementing a very strong existing ecosystem. Financial advisors who use BlackRock’s model portfolios no longer have to step outside the corporate umbrella to purchase an Invesco or Vanguard product when they want QQQ (large-cap tech growth) exposure. They can now simply click the box on an in-house iShares vehicle. Of all the potential rationales I can think of, that’s the top of the list. I am a former advisor, and I can imagine that back in that portion of my career, such a launch would influence my decisions. Simplicity wins in a market where so many segments follow each other in a series of “risk on” and “risk off” waves.

What does IQQ say about the stock market now?

The ultimate, most dangerous bubble indicated by this launch is the actual price of the large-cap technology market. History shows that major asset managers do not aggressively launch low-cost, retail-focused vehicles for a specific sector when that sector is dirt cheap and universally hated. They engineer and launch these mass-market tools at the exact cyclical peak of retail enthusiasm, precisely when public demand for the underlying theme is completely boiling over.

The timing of this launch coordinates directly with an exceptionally concerning technical chart pattern on the flagship Invesco QQQ Trust. After an exponential, multi-year advance driven entirely by AI dreams, the Nasdaq-100 looks increasingly exhausted.

This QQQ chart of daily prices has one of the most ominous percentage price oscillator (PPO) indicators I’ve seen in a major market ETF. The story I’m getting is one of slowly but surely falling demand. The rallies still happen, but the index is more like when kids climb up a steep slide. They can get part of the way up, but eventually gravity wins. 

For iShares, launching a brand-new, ultra-cheap vehicle to make it even easier for retail savers to purchase the Nasdaq-100 at an affordable entry price in dollars of just $24 per share is a textbook late-cycle maneuver. Even if it will widen the tent, allowing more investors to own single shares or 100 shares. By contrast, QQQ’s current dollar price is over $700.

However, it doesn’t change the state of the market. No index ETF can do that. And with QQQ wilting a bit more all the time, IQQ’s addition to a very overpopulated ETF market is worth noting. 

Rob Isbitts is a semi-retired CIO, former fiduciary investment advisor, and Barchart columnist. Check out his other work at ETFYourself.com (featuring the Fresh Charts weekly trading post), and ROAR.PiTrade.com, helping investors to better-manage their own portfolios.