Let’s make that a table for three.

After decades of near total dominance by Invesco’s QQQ, the Nasdaq 100 trade is getting some long overdue company. BlackRock and State Street filed to launch competing funds, curiously just one day apart, earlier this month, turning the lonely corner of the exchange-traded fund marketplace into a party of three. Sure, competing with one of the most successful funds of all time, the $426.6 billion Invesco QQQ Trust, is daunting, but if anyone can, it’s BlackRock and State Street, which both have significant backing and reach to support the new launches. The real question becomes: What will it take to replace the storied Qs at the head of the table?

“First off, we don’t know the expense ratio,” said WisdomTree’s head of equity strategy, Jeff Weniger, who runs a similar large-cap, tech-heavy fund. “We also don’t know whether or not the moment that it’s launched, if Invesco just matches [fees]. There’s a lot of game theory in this.”

Let’s Make This ExQQQclusive

QQQ first launched in 1999 as a unit investment trust, which required it to spend a significant portion of its revenue on marketing. It has since converted into a more traditional open-end fund and just recently lost its status as the only fund tracking the Nasdaq 100, possibly after a non-compete agreement lapsed. “Invesco’s conversion … could have triggered a revision of Invesco’s index licensing agreement with Nasdaq,” said Amrita Nandakumar, president of Vident Asset Management. “Invesco may have been motivated enough to push through the fund’s restructuring that it was willing to give up exclusivity.”

Moving forward, fees are likely to be a driving factor. The S&P 500 index saw a similar dynamic with State Street’s SPY, with lower-cost rivals chipping away at expense ratios over time, like BlackRock’s IVV and Vanguard’s VOO. “History certainly suggests that a fee-war is imminent,” Nandakumar said, adding that since QQQ is no longer a UIT, Invesco will be better positioned to compete on fees and generate additional revenues via securities lending.

While QQQ has the upper hand with institutional investors, BlackRock and State Street do have superior distribution power, especially across the financial advisor channel, and specifically in model portfolios, she added. “Were their new ETFs to be offered in models alongside other blockbuster core funds such as SPY or IVV, that could serve as a powerful way to steal QQQ market share.”

Invesco cited its long history and track record in a statement, adding: “There is only one QQQ.”

Them Fighting Words? WisdomTree, for its part, has been trying to tackle QQQ’s dominance from a different angle. “We’ve been trying to attack the Qs with one that’s called QGRW,” Weniger said, a mega-cap growth fund that doesn’t just stick to the Nasdaq 100. “From a game theory perspective, it’s probably better for us that BlackRock and State Street want to play, because now it’s requiring people to take another look,” he added. “We’re more than happy to see the big players duke it out.”

It’s the fastest-growing new ETF in recent memory.

The Roundhill Memory ETF (DRAM) has shot up to $1.5 billion in assets since its April 2 launch, thanks to a flood in flows and returns of nearly 38% to date. While it’s still very early days for the thematic fund, its performance hints at the demand for exposure to a critical piece of the artificial intelligence race. The new fund is already Roundhill’s second largest, sitting behind its $4.5 billion Magnificent Seven ETF (MAGS).

“The early investor interest in DRAM reflects a growing appreciation that memory chips are the true bottleneck in the AI buildout,” Roundhill Investments CEO Dave Mazza told ETF Upside. “Everyone talks about GPUs, but without high-bandwidth memory, those GPUs can’t function.”

Chips on the Table

It’s a niche area, and concentration (and the risk associated with it) is the consequence of having only about a dozen holdings. Among the Memory ETF’s top allocations, about 75% are in three stocks: SK hynix, Micron Technology and Samsung Electronics. But concentration is also the pure-play experience in this case, and other semiconductor ETFs aren’t tailored to memory chips, Mazza noted. “Investors have had very few good options. South Korean ETFs do offer exposure to Samsung and SK hynix, but they come with significant baggage including holding a lot of names that have nothing to do with memory or AI,” he said. “In addition, semiconductor ETFs are poor access vehicles. In most cases you get little to no meaningful exposure to pure-play memory names.”

Still the relatively broad category of semiconductor ETFs is doing well this year:

• The $56 billion VanEck Semiconductor ETF (SMH) has returned 39% year to date.
• The $28 billion iShares Semiconductor ETF (SOXX) is up nearly 47%.
• State Street’s $2.3 billion SPDR S&P Semiconductor ETF is up 43%.

A Little Competition: It’s rare that any ETF issuer gets the benefit of exclusivity, especially when demand is apparent for a strategy. How many firms will pursue memory ETFs remains a question, but at least two others are prepping launches. Earlier this month, KraneShares filed with the Securities and Exchange Commission for its High-Bandwidth Memory ETF, and Tema ETFs did so as well. Ticker and fee information for those funds haven’t been published, but the investment strategies show that they may overlap with that of Roundhill’s ETF. The KraneShares fund, for example, will invest at least 80% of net assets in companies where at least 50% of their revenues are related to high-bandwidth memory, dynamic random access technology or not-and flash (NAND) memory, the latter of which includes solid-state drives using the technology.

“As hyperscalers continue to pour hundreds of billions into AI infrastructure, a disproportionate share of that spending flows directly into memory and specifically into HBM, where supply is constrained and only three companies in the world can manufacture it at scale,” Roundhill’s Mazza said.

Open your mind.

It’s not just the advice of Kuato in the 1990 film Total Recall. The US is set to make psychedelic-assisted, mental-health treatments more accessible under a recent executive order. That means more investigational therapy using psilocybin and other drugs, which bodes well for the AdvisorShares Psychedelics ETF (PSIL). Perhaps unsurprisingly, that firm offered an endorsement of the order, calling it “a long-overdue step for patients, veterans and the clinicians caring for them.” It’s a segment of the market that could get more interest from investors.

And, not to get too far into the weeds, but the acting US attorney general subsequently signed an order reclassifying marijuana as less dangerous, at least in states where it is licensed for medicinal use.

Not the Full Treatment

Legalization is not in the cards, at least not immediately. Cannabis proponents have long wanted more than what President Trump’s executive order late last year provided, which is downgrading marijuana to a schedule III drug that can be legally prescribed. “The view is that there’s been so much disappointment in terms of follow-through on this rescheduling,” said Tim Seymour, portfolio manager of the Amplify Seymour Cannabis ETF (CNBS) and Alternative Harvest ETF (MJ). “But this is the most notable reform on cannabis in decades. It’s happened.”

There were some quick gains for the thematic ETFs just after the orders were published, but prices waned in the days afterward:

• PSIL jumped 19% at market open last Monday, which followed the April 18 executive order. As of close on Friday, the ETF remained up 6% from the time the order was published, and it was up 16% year to date.
• Leading up to the attorney general’s order on marijuana reclassification Thursday, MJ and CNBS climbed 24% and 28%, respectively, over a day. They have since fallen closer to their prices before the news of the reclassification.
• The biggest fund in the category, the $1 billion AdvisorShares Pure US Cannabis ETF (MSOS), had a similar bump.

Spreading Like Spores: The Food and Drug Administration announced a series of regulatory actions Friday that could promote the use of psilocybin and other psychedelic drugs for mental health treatments. And the reclassification of medical marijuana could pave the way for more states to approve it, Seymour said. “This is the first of other dominoes to fall that are real policy breakthroughs. But there is no immediate road to banking, stock exchange listings or getting the adult [recreation use] market out into the same status,” he said. “There is still a lot more detail that the market is waiting for. Markets don’t like uncertainty of any kind, and this is uncertainty.”