🎙️ The Qs

💻 Twenty-five years ago this week, Apple launched the first iMac computer.

It’s credited with rekindling Apple’s profitability and starting a wave of innovation — the iPod, iPhone, and iPad all hit the market in the ensuing years.

The Mac’s iconic slim design has stood out in a crowded market, including industry giants Microsoft, Dell, and Lenovo.

— Weronika, Shawn & Matthew

Here’s the rundown:

Today, we'll discuss the three biggest stories in markets:

• The economics behind the popular QQQ ETF

• How affordable housing and wealth can coexist

• The Parmesan cheese with microchips

All this, and more, in just 5 minutes to read.

CHART OF THE DAY

IN THE NEWS

😬 Why QQQ Makes No Money for its Owner (Bloomberg)

Surely, one of the world’s biggest investment funds prints money for the firm that owns it, right? Surprisingly, no.

Three letters have become synonymous with American innovation and big tech investing: QQQ. That is, the Invesco QQQ Trust Series 1, but it’s best known by its three-letter ticker or even just “the Qs.”

Something special: With $200 billion at its fingertips, the exchange-traded fund (ETF) is astonishingly large. And it’s been a great performer, too, tracking roughly 100 of the biggest U.S. companies on the Nasdaq stock exchange. In the past decade, it’s almost doubled the S&P 500 with a 430% total return.

• Bloomberg’s senior ETF analyst commented, “It captures the tip of the spear of American innovation. There’s really nothing like it in the rest of the world.”

Thanks to its popularity, the fund generates around $400 million yearly from fees with its 0.2% expense ratio. Yet, most of that goes to the fund’s trustee, the Bank of New York Mellon, and to Nasdaq, which created the index that the Qs tracks.

Why it matters:

Almost nothing is left over for Invesco, the firm that actually owns and manages the fund (known as the sponsor). Instead, any profit leftovers must be spent on marketing, hence why QQQ is “the official ETF of the NCAA” — we’ve all seen the March Madness ads.

Appendix: See, QQQ is technically a unit investment trust. Without getting too technical, it’s a mostly outdated structure from the 90s that one investor said was “like the appendix of the ETF world.”

• Basically, it lacks a Board of Directors that can easily rewrite its governing prospectus to not spend everything on marketing.
  

• Instead, it’d need to orchestrate an expensive and difficult-to-pull-off vote with its tens of thousands of shareholders to make changes.

Good problem to have: Before you shed a tear for Invesco, they’ve found other ways to profit off the QQQ brand. The company’s workaround is to spin off ETFs with similar tickers like QQQM, QQQJ, and QQQS, creating a suite of Q-themed investment products.

• With these investment funds that it can actually profit from, Invesco has lowered the fees to attract investors. QQQM, for example, is essentially the same (from an investment perspective) as QQQ without the mandatory marketing spending requirements.

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🏠 Can Affluence and Affordable Housing Coexist? (NYT)

Towns nationwide are grappling with balancing affluence and affordability. You see it play out repeatedly, where higher earners coexist with people who qualify for affordable housing.

One example: Idaho Springs, an outdoorsy Colorado mountain town. High-earning remote workers moved in, upending life for some who had already established roots there.

• The old sleepy mining town has experienced a housing boom as people flocked to the area out of the pandemic thanks to its proximity to hiking, fishing, and skiing.

• That influx of newcomers has driven higher rents and greater understaffing in the service industry — sound familiar? — for hotels, cafes, and restaurants that rely on hourly workers to keep their businesses going.

As workers left major cities like Chicago, San Francisco, and New York during the pandemic, small mountain towns have seen an influx of new residents. For example, in Frisco, Colorado, the median monthly rent is about $4,000, 90% more than the national median.

Property values are up over 50% in similar towns nearby in the past 12 months, even after the Federal Reserve began raising interest rates.

Yet here’s the issue: If you don’t have a well-paying remote job, you can’t afford to live there.

• The wage floor for most jobs in these towns, from line cook to ski lift operator, is only about $18 an hour, or roughly $37,000 yearly.

• Some towns offer subsidized local employee housing, but openings are rare, and space is limited, forcing some hourly workers to commute from an hour away.

The balance between well-off and service workers in popular destination towns like the Colorado Rockies is nothing new. But the aftermath of the pandemic has exacerbated the issue.

Why it matters:

Gentrified: The growing trend whereby a poorer urban area is changed by wealthier people moving in, improving housing, and attracting new businesses, usually displacing inhabitants.

• To limit gentrification, some towns restrict Airbnb and other rental properties and ban new development.

• Gig workers have developed an aphorism: “It’s either five mil or five jobs,” reflecting the divide between the well-off and those who aren’t.

Critics also argue that many homeowners driving up housing prices visit briefly during ski season, leaving the homes vacant most of the year.

Solutions: What’s helped some towns: more affordable housing, conservation agreements to guard wildlife and scenic open space by permanently banning development, and limiting rent increases.

• But there’s no silver bullet, and half of Colorado renters are officially defined as cost-burdened — spending more than 30% of their income on housing costs.

MORE HEADLINES

💰 Americans have almost depleted excess savings, Federal Reserve study says

🇨🇳 China's crackdowns rewrite investors' private sector playbook

🧑‍⚖️ ‘Bored Apes’ investors sue Sotheby’s, Paris Hilton, and others as NFT prices collapse

🔺 Mortgage rates hit highest level in 20 years

🧀 Next Time You Buy Parmesan, Watch Out for the Microchip (WSJ)

Americans love Parmesan. But the affordable Parmesan you pick up at the grocery store probably has nothing to do with the original Italian delicacy.

While the markets in Europe and the U.S. are flooded with fakes, estimates suggest the market for imitations is nearly as large as that for authentic products.

• That might end as Italian Parmigiano-Reggiano producers declare war against fake cheese products, aiming to preserve the product's authenticity.

The plan? Microchips. That’s right, apart from heavy regulations regarding the ingredients, production, and aging protocols, the cheese makers plan to outsmart fakes with edible microchips.

Zoom out: Italian parmesan cheese producers have been battling against imitation products for years. The creators of Parmigiano-Reggiano, the official name for original parmesan cheese, are now embedding microchips into their 90-pound cheese wheels.

How it works: To detect fraud, the chips have blockchain-backed tracing and real-time inventory management. A micro-transponder, roughly the size of a grain of sand, is implanted onto the food-safe casein label adjacent to QR codes.

• When scanned by a laser reader, it provides a unique ID for verifying Parmigiano-Reggiano cheese wheel authenticity.

Why it matters:

Cheese holds a special place in peoples’ hearts. The average individual in the U.S. consumed about 40.3 pounds of cheese in 2021. Over the past decade, per capita cheese consumption in the U.S. has risen by more than five pounds.

• And Parmesan takes the crown as the most favored grated cheese in the U.S., enjoyed by roughly 195 million consumers annually.

Copycat: In the U.S., the terms "Parmigiano Reggiano" and "parmesan" are often used interchangeably, but they are distinct. Most cheese labeled as "parmesan" in the U.S. is an imitation of Parmigiano Reggiano produced domestically. ​

The price is right: The challenge for cheese producers' new initiatives is that authentic and safeguarded products carry premium price tags.

• While Wisconsin-produced "Italian Style Cheese” costs 37 cents per ounce at Walmart, a 90-pound authentic cheese wheel can cost more than $1,000 (over $1.30 per ounce.)
  

• Since the authentic cheese is imported from Italy, it typically costs twice as much as similar but unprotected alternatives in U.S. stores.

See you next time!

That's it for today on We Study Markets!

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