I love March Madness. For the uninitiated, this is the annual basketball tournament for the NCAA men’s and women’s championship. My UConn Huskies men’s team won the championship the last 2 years but unfortunately just lost in the second round this year. Anyway, like many of us, I spent the past weekend watching college basketball. I really enjoy watching and playing basketball so it is of course right up my alley. (You can even see some of the bball skills here.) But the past few years, there has been one thing that I really, really hate about it. And that is…the incessant commercials from and sponsorship of March Madness by the Invesco QQQ mutual fund. But this year there is a new commercial going up against Invesco that’s been airing as well…from Vanguard.

Why I hate that QQQ is inundating March Madness

Well, first of all, I pretty much hate any commercials. But I get it.

And I would never have even noticed or understood these QQQ commercials before beginning my financial education and journey.

But the point is that now I do notice them. And they annoy me. So why?

For starters, what is the QQQ mutual fund?

The Invesco QQQ is a mutual fund that tracks the Nasdaq 1000. So, that means it is a tech-centric mutual fund with large holdings in companies like Apple and Facebook, etc.

It calls itself a passively managed mutual fund…technically an index fund.

But is it really?

This is a bit of wolf-in-sheep’s-clothing advertising in my opinion. Because many people will assume that index fund is synonymous with broadly diversified, low cost index fund. But that is not the case.

It’s not broadly diversified

Technically an index fund is any mutual fund that tracks anything. They started off tracking the entire stock market or large swaths of it. But that is not always the case now. Many “index” funds track very small sectors of the market. And are thus not broadly diversified despite technically being indexed.

The Invesco QQQ fund is like this. Owning a large collection of tech funds is not broadly diversified. It’s better than some other more narrow pseudo-index funds. But still not something that I would want as the foundation of my – or anyone else’s – investment portfolio.

So, QQQ is not broadly diversified, but is it low cost?

And it’s not low cost

Sort of. Its expense ratio is 0.20%. That’s not atrocious. And they do tout it as being a major advantage of the fund. And that is just not the case.

Of course, to someone new to investing, an expense ratio of just 0.20% seems incredibly low. But not when you compare it to the expense ratio of a truly low cost, passively managed, broadly diversified index fund like VTSAX with an expense ratio of just 0.04%.

Don’t believe me? Take a look at this great graphic from Motley Fool showing the difference in returns between QQQ and a low cost index fund with an expense ratio of 0.03%

So yeah, that’s a big difference!

Also, we have to ask ourselves why the expense ratio for QQQ is so much higher if it is truly passively managed like an index fund?

To dig deeper into this, we need to look at the turnover ratio of the fund. The turnover ratio is a measure of how many of stocks in the fund “turn over” annually. So a fund with 100% turnover ratio would change its fund composition completely every year.

The turnover ratio of QQQ is 7-8%. This is not huge but it is about double most other broadly diversified index funds. So, even though QQQ says it is passively managed, there is perhaps some more active management than we are led to believe.

And it’s that sort of marketing trickery that makes me hate March Madness for having this sponsor. I just don’t like it.

However, there is one important question we haven’t addressed yet…

Where does Vanguard come into this story with Invesco?

In comparison to Invesco, which is the “official ETF sponsor of March Madness,” Vanguard started airing a new commercial this year. I’ll admit, the Vanguard commercial is much less enticing and entertaining than the Invesco commercial, but it does carry a strong message.

The commercial boasts how Vanguard is reducing the expense ratios on many of their funds, including a lot of their fixed income funds.

This is a much more impactful and prudent message for potential investors. When it comes to investing passively via broadly diversified funds, expense ratio is the main determinant of your future returns.

And while the expense ratio of VTSAX is not changing, it remains the gold standard for total stock market investing.

So how do QQQ and VTSAX compare?

Like I said, VTSAX here just represents an average low cost, broadly diversified total stock market index fund.

Based on a comparison run in PortfolioLabs, $10,000 invested in VTSAX from Nov 13, 2000 to 2024 has shown a total return of 375.43% as of 2023, lower than QQQ’s total return of 407.90%.

So, QQQ has outperformed VTSAX. Well, not so fast as this does not include the associated expenses, just the gains and dividends accrued. But regardless, the returns are close. And more recently, QQQ has shown better returns than VTSAX in shorter time periods.

However, the risk associated with QQQ in terms of daily standard deviation and maximum drawdown are significantly greater.

So, is Invesco or Vanguard a better sponsor for March Madness?

First, we live in a free market and anyone can advertise anywhere that will let them.

And honestly, there are way worse ways to invest your money than in the QQQ mutual fund. Like cryptocurrency, actively managed mutual funds, and other tempting but best avoided investments like these.

My disappointment just comes from the slight misrepresentations that most investors will miss. This is what leads to the bad advice like this being passed around in doctors’ lounges. Just like I would have a short time ago…

Meanwhile, Vanguard should probably market itself a little bit better or at least in a more enticing way. But either way, I throw my weight with them in this battle.

But what will happen in the future? And what should we invest in?

The answer to the first question: Who knows?

Which leads to the answer to the second question: Since neither I nor anyone else has a working crystal ball, you will find me continuing to invest for the long term in broadly diversified, low cost index funds designed to capture total market gains.

Just like my written investing plan calls for!

…and I use Vanguard as my brokerage of choice.

Looking for more insight into how to successfully invest in the stock market? Look no further!

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• The Best Stock Market Explanation I Have Ever Heard

What do you think? Should QQQ be a March Madness sponsor? Or no? Do you invest in QQQ? Do you invest with Vanguard? Let me know in the comments below!