Invesco is spending a lot of money advertising QQQ as “access to innovation”. Does that claim hold up?

Note: I originally posted this in r/collegebasketball, but it got removed as they're more interested in bar graphs created in MS Paint so I'm posting here (Yes, I am a bit salty). I took out a section explaining ETF's as I assume anyone here has a decent grasp of what those are

TL;DR

There are some innovative companies in the holdings of QQQ, but not near as much innovation happens here as the commercials would have you believe. Using the methodology described below, I (very subjectively) find the QQQ fund to have an “innovation rating” of 49.27%.

Intro/Background Info

If you're watching the NCAA Basketball tournament, you've probably seen the advertisements for the Invesco QQQ fund, claiming investors are “part of the team” and “taking part in innovation”. Tossing aside the dubious first claim (you're no more part of any team than Packers stockholders are; holding shares in an ETF doesn't even grant you voting rights), let's take a look at the “innovation” claim.

Are companies held by the QQQ Fund truly innovative?

As of market close on Friday, March 25th, the QQQ fund held stock in 101 companies (due to a quirk in Alphabet/Google's share structure, it actually holds 102 different stocks). The holdings can be found here. I've split them into categories below (percentages are of total holdings) and given them a very subjective rating of innovation. A couple of general rules of thumb I went by:

• Innovation, in my interpretation of the QQQ commercials, means one of two things: Either “Something new that changes the industry” or “Marked improvement to a current offering that makes it better”.

• Finding a better way to extract money from customers (ie. turning your product into a software-as-a-service rental) is not innovation in the spirit it's being presented to us.

Methodology

I assigned each category an “Innovation rating” in which I used my own subjective judgment to assign a rating from 0 to 1 that represents how much I think the company embodies the spirit of “Innovation” as the commercials for QQQ present to us (with 1 being “true innovator” and 0 being “no innovation whatsoever). Each category's rating is multiplied by the percentage of the fund's holdings in that category to create a weighted average innovation rating for the QQQ Fund. That number comes out to be 49.27%.

• Notes: If you don't like how I've rated companies, make your own post. Also note that the percentages don't exactly add up to 100%, the fund holds a little bit of cash as well. Also, you can easily buy stocks in these companies individually. You don't need QQQ to own shares in these companies for you if that's what you want.

RATINGS

Big, Old Tech Companies (Innovation rating:.4)

These companies are the big players in the tech industry. Are they innovators? I give them an innovation rating of .4 as they do create new products regularly, but their main innovations buying up anyone that actually innovates and turning the software industry into an unfortunate hellscape where they collect absurd amounts of data on you to sell, make minimal changes and sell them as a “new product, or turn their products into “rental contracts” that they have all the power over.

• Apple (12.53%)

• Microsoft (10.06%)

• Google Class A (3.94%)

• Google Class C – No voting rights (3.76%)

• Facebook (3.35%)

• Netflix (1.22%; I almost moved them to the category below as, while they changed an industry, they've clearly lost the first-mover advantage and media consumption is quickly returning to a cable-style landscape where we pay for 50 things we don't want to watch just so we can get the one thing we do want to watch)

• Adobe (1.49%)

• Baidu (0.27%; real big in China)

Archaic Tech and Telecom Companies (Innovation rating): 0)

While these are tech companies, they operate on old business models and haven't done anything new for over a decade, thus I can't abide calling them “innovators”. Mostly they get by on being the biggest (or only accessible) provider of their service. Anyone creating an online retailer or auction service gets put in this category as the timeframe for calling that “innovation” has long passed

• Amazon (7.35%; Amazon has grown so large and conglomerated that it's hard to categorize, and there are some decently innovative tech offerings like AWS, but for the most part the “innovation” that Amazon does is something someone else does first that is either copied or acquired by Amazon)

• Ebay (0.25%)

• Sirius XM (0.19%)

• AirBnB (0.46%)

• Charter Communications (0.71% heard of Spectrum?)

• T Mobile (1.15%; I might be a little unfair putting them in this category, but the very-consolidated telecom industry as a whole has shown that innovation is nowhere near its primary focus)

• Comcast (1.55%)

• Booking Holdings (0.68%; heard of priceline.com?)

• Mercado Libre (0.46%)

• JD.com (0.27%)

• Copart (0.22%; specifically deals with selling cars through online auctions)

• Pinduoduo (0.15%)

Computer Hardware, Network Infrastructure, and Cybersecurity (Innovation rating: .9)

By far the biggest category in terms of number of companies, this catch-all category represents tech companies that exist by staying ahead of the curve. In the case of cybersecurity firms, it's because they contractually have to, but most of the companies here would easily fall by the wayside if they quit innovating (at least until Covid put a bottleneck in semiconductors and chip manufacturing). I could easily split this into smaller categories, but they'd score similar ratings in my very subjective system

• NVidia (4.37%)

• AMD (1.44%)

• Cisco Systems (1.66%)

• Verisign (0.17%)

• Intel (1.54%)

• Broadcom (1.88%)

• Qualcomm (1.31%)

• Texas Instruments (1.25%; they do a lot more than make calculators!)

• Applied Materials (0.90%)

• Micron Technology (0.64%)

• Analog Devices (0.63%)

• Lam Research (0.57%)

• Marvell Technology (0.46%)

• Palo Alto Networks (0.45%)

• ASML Holdings (0.42%)

• KLA Corporation (0.40%)

• Fortinet (0.40%)

• NXP Semiconductors (0.37%)

• Synopsys (0.37%)

• Crowdstrike Holdings (0.34%)

• Cadence Design Systems (0.33%)

• Microchip Technology (0.32%)

• ZScaler (0.24%)

• Skyworks Solutions (0.17%)

Business and Financial Tech (Innovation Rating: .7)

These companies fulfill some tech need of businesses. I give them a somewhat high innovation rating as most have transformed some aspect of business over the last decade, but the score suffers as sometimes the changes are either faulty, unwelcome, or just plain arbitrary, and they're frequently the target of customer complaints

• Automatic Data Processing, Inc. (0.67%)

• Zoom Video Communications (0.21%)

• PayPal (0.99%)

• Fiserv (0.47%)

• Cognizant Technology Solutions (0.35%)

• Workday (0.35%; “cloud based human capital management” sounds pretty dystopian, doesn't it?)

• Paychex (0.34%)

• Atlassian (0.30%; a company that does “software for software developers”, I almost put them in the Big, Old Tech group because, while coming up with the fairly popular Jira 20 years ago, they spent most of the past decade buying up other innovations without coming up with any of their own)

• Datadog (.29%)

• Verisk Analytics (0.25%)

• Splunk (0.17%)

• Okta, Inc. (0.16%)

• Docusign (0.15%)

Innovation Companies (Innovation rating: 1)

Non-Biotech companies that provide a new class of product. Strangely, they're either electric vehicles or medical equipment

• Tesla (4.62%)

• Lucid Motors (0.32%)

• Intuitive Surgical (0.74%)

• Dexcom (0.33%)

• Align Technology (0.25%)

Retailers (Innovation rating: 0)

Old companies that exist to sell other companies products. Pretty self-explanatory why the innovation rating here is a big fat zero

• Costco (1.81%)

• O'Reilley Automotive (0.34%)

• Wallgreens Boots Alliance (0.30%)

• Dollar Tree (0.26%)

• Ross Stores (0.23%)

Food and Beverage (Innovation Rating: .05)

Mostly old companies that get by on flagship products that have been around longer than most of us have been alive. Avoids the 0 by occasionally creating something new

• PepsiCo (1.67%)

• Starbucks (0.73%)

• Mondelez International (0.62%)

• Keurig Dr. Pepper (0.39%)

• Kraft Heinz (0.35%)

• Monster Beverage (0.30%)

Non-IT infrastructure (Innovation rating: .7)

These companies represent “things that get built” that aren't computer related. Buildings, aircraft, materials, they all find themselves here. The relatively high innovation rating represents a lot of innovating that we don't see

• Honeywell (0.98%)

• CSX Corporation (0.59%)

• Autodesk (0.34%; included here because, even though it's a software company, it's a major part of this industry)

• Ansys (0.20%; included here for the same reasons as Autodesk)

• Old Dominion Freight Line (0.27%)

• Fastenal Company (0.24%)

• PACCAR (0.23%)

BioTech (Innovation rating: 1)

Companies in this area either find new products or cease to exist. A true “innovate or die” world, though if a company is big enough it can “innovate” by acquiring the real innovators or providing the infrastructure for the real innovators to scale up

• Amgen (0.97%)

• Gilead Sciences (0.54%)

• Regeneron Pharmaceuticals (0.53%)

• Moderna (0.53%)

• Vertex Pharmaceuticals (0.47%)

• Illumina (0.39%)

• IDEXX Laboratories (0.33%; this company focuses on veterinary applications)

• AstraZeneca (0.28%)

• Biogen (0.23%)

• Seagen (0.19%)

Financial services and Tax preparation (Innovation rating: -.5)

I've separated this company out and given it a negative innovation rating, as the company is known for lobbying against updating the process of filing taxes, which I consider to be an anti-innovative practice

• Intuit (0.97%)

Video games and Dating (.4)

The real innovative players in this field are much smaller companies, but occasionally one of these shows a flash of brilliance

• Activision Blizzard (0.45%)

• Electronic Arts (0.26%)

• Match Group (0.22%; you'd be surprised how many dating services are all owned by this one company!)

• NetEase (0.14%; in addition to being a video game developer, Wikipedia states “The company also owns several pig farms.”)

Hotels (Innovation Rating: 0)

Nothing innovative about a hotel

• Marriot International (0.41%)

Utilities (Innovation rating: .2)

While improvements in power generation exist, the utility companies aren't innovative in the way the QQQ commercials would have you believe

• American Electric Power (.36%)

• Exelon (0.32%)

• XCel Energy (0.28%)

• Constellation Energy (0.13%)

Non-Tech Business Support (Innovation Rating: 0)

Founded as a laundry company, Cintas provides laundry services, restroom supplies, low-level medical supplies, and PPE to businesses

• Cintas (0.31%)

Clothing (Innovation Rating: .05)

The only actual clothing maker on the list, Lululemon survives off of one (admittedly pretty industry-changing) innovative thought made 20 years ago

• Lululemon Athletica (0.29%)