Everyone Is Talking About ProShares UltraPro QQQ ETF. Is It a Good Long-Term Option?

The ProShares UltraPro QQQ ETF (TQQQ 0.62%) is getting a lot of attention from investors in 2024, and it's easy to see why. In the past six weeks alone, the exchange-traded fund (ETF) has gained nearly 50%, and that's on top of a stellar record of long-term performance since its 2010 inception. In fact, if you had invested $5,000 in the ETF at that time, you'd almost be a millionaire just 14 years later.

While this ETF has an undeniably strong track record of producing market-beating returns, there's a lot that investors should know before buying shares. Here's a rundown of what this ETF is, and the pros and cons of investing in it.

The ProShares UltraPro QQQ

The ProShares UltraPro QQQ ETF is in a special category of ETFs known as a leveraged ETF. In a nutshell, a leveraged ETF aims to return a specific multiple of the performance of a certain benchmark index.

In this case, the ProShares UltraPro QQQ is designed to produce three times the daily returns of the Nasdaq 100 index, which is a weighted index of some of the largest companies on the tech-heavy Nasdaq stock exchange.

So, if the Nasdaq 100 rises by 1% tomorrow, this ETF should rise by 3%. This has produced incredible long-term performance as we'll see in the next section. But the other side is that declines are amplified as well. Let's say the market is crashing and the Nasdaq 100 falls by 5% today and another 5% tomorrow. This ETF would have two straight days of 15% declines.

Incredible performance -- with an asterisk

To say that the ProShares UltraPro QQQ has been a high-performing ETF would be quite an understatement. Here's how the fund's total return over certain time periods stacks up against the S&P 500 benchmark index.

Data source: yCharts. Percentages are total returns, which include dividends.

To be sure, that's amazing long-term performance. But it's important to know that the fund's inception date was Feb. 9, 2010. That's soon after the U.S. economy started to recover from the Great Recession, and it has generally been a great environment to invest in technology stocks ever since. If the fund's inception had been just two years earlier, or had occurred prior to the dot-com bust in 1999 to 2000, the long-term performance numbers might look very different. In fact, if the ETF had formed at the height of the late-1990s tech bubble, investors could have even ended up nearly wiped out because of the leverage factor.

The point is that, yes, the ProShares UltraPro QQQ has delivered phenomenal returns over a 14-year period. But it has been arguably the best 14-year stretch in modern history to invest in the tech-heavy Nasdaq.

Is this a good long-term investment?

The ProShares UltraPro QQQ owes much of its long-term performance to the fact that it was started just after the beginning of the longest bull market in history. It's entirely possible a similar situation will occur over the next 14 years, but investors shouldn't expect it.

In a nutshell, this ETF is likely to be a great investment if the stock market, and specifically large-cap technology stocks, perform well. But it can turn sour very quickly if the environment isn't cooperating. As a real-world example, the ProShares UltraPro QQQ produced a negative 79% total return in 2022 as a bear market took hold.

The bottom line is that this is an investment that shouldn't be approached with any money you can't afford to lose. Even if it performs well, it's likely to take investors on quite a roller-coaster ride, so be aware of what you're getting into.