Nasdaq ETFs And What You Need To Know

nasdaq ETF

One of the quickest and easiest ways  investors can gain exposure to some of the best tech stocks in the market is by buying into a Nasdaq ETF. That said, the most well known Nasdaq ETF is the PowerShares QQQ ETF (NASD: QQQ).

The index includes 100 of the largest domestic and international non-financial companies listed on the Nasdaq Stock Market based on market cap.

As of now, the largest companies in the world trade on the Nasdaq market center, they include: Amazon, Apple, Facebook, Alphabet, and Microsoft. The ‘QQQ’ serves as a good barometer for the overall health of tech sector.

nasdaq ETF

 

The Top Nasdaq ETFs

PowerShares QQQ ETF (NASD: QQQ) 

nasdaq ETF

Source: Invesco

Its top holdings include: Apple; Microsoft; Amazon; Facebook; Alphabet; Intel; Cisco Systems, Comcast; and Amgen.

The ETF has posted positive returns since 2009. It gives investors exposure to Nasdaq stocks in the following sectors: internet software and services; software; technology hardware, storage and peripherals; semiconductors and semiconductor equipment; internet and direct marketing retail.

The ‘QQQ’ is actively traded, as tens of millions of shares trade daily. Its been around since 1999 and has a net expense ratio of .20%

Fidelity Nasdaq Composite Index (NASD: ONEQ) Not nearly as actively traded as the ‘QQQ’, the ETF attempts to provide investment returns that closely correspond to the price and yield performance of the Nasdaq Composite Index.

Its largest holdings include: Apple; Microsoft; Amazon; Facebook; Alphabet; Intel; Cisco Systems; and Comcast.

Gross expense ratios for this large cap growth ETF are  0.31%. The major difference between ‘ONEQ’ and ‘QQQ’ is that ‘ONEQ’ has more stocks in its basket, with nearly 1,000 names. However, the top ten names make up for nearly 40% of its holdings.

Other Nasdaq ETFs

iShares Nasdaq Biotechnology ETF (NASD: IBB) a niche ETF that focuses on Nasdaq biotech and pharmaceutical companies.

The ETF seeks to track the investment results of an index composed of biotech and pharmaceutical stocks  listed on the Nasdaq.

Biotech stocks have been historically volatile. That said, investing in a diversified  basket of biotech and Pharma stocks could help reduce risk.

Some of the ETFs largest holdings include: Amgen; Gilead Sciences; Biogen; Celegene; Regeneron Pharmaceuticals; Vertex Pharmaceuticals; and Illumina Inc.

Proshares UltraShort QQQ ETF (NASD: QID) seeks a return that is -2 times the return index for a single day of the Nasdaq-100 Index.  As a result, ‘QID’ is not suitable for long-term investors, but more so as a day trading product.

The ETF is not short individual stocks. Instead, it is primarily short Index Swaps.

That said, day traders can use the product to bet against a market decline or hedge against their long stock portfolio.

Proshares Ultra QQQ ETF (NASD: QLD) A leveraged ETF that seeks to return 2 times the return of the Nasdaq-100 Index for a single day. As a result of its structure, the ETF is not suitable for long-term investors, but makes for a good day trading vehicle.

The ETF  invests in individual companies and Index Swaps.

Keep in mind that leveraged ETFs should not be held long term as the decay will eventually cause them to go to zero. They should be used only as trading vehicles.

Benefits Of Nasdaq ETFs

  • Diversification. When you buy an individual stock you are not only betting on the sector its in but also how well management  performs. By investing in an ETF that has a basket of stocks, there is less single stock risk.
  • Cost Effective. To add all the names on the Nasdaq 100 would cost you a lot more money compared to simply buying the ETF. It gives small investors an opportunity to gain access to large cap growth stocks.
  • Greater Liquidity. Imagine if you had to liquidate a basket of stocks because of market fears or personal reasons. Instead, if you just owned a Nasdaq ETF you can get in and out of the position fast and easy.
  • Hedging. You can use a Nasdaq ETF to hedge against long or short positions. For example, let’s you were bearish a couple Nasdaq biotech stocks but were bullish the overall sector. You can short the individual names and hedge by buying ‘IBB’ On the other hand, if you expect near term downside in the Nasdaq but are bullish long-term, you could buy an Ultra Short ETF to get downside protection.

Bottom Line

In the late 1990s the stock market exploded, largely due to tech stocks, most notably internet stocks. When the dust settled, the Dotcom bubble collapsed and it took the overall market lower and lead to an economic depression.

Fast forward to today, and tech stocks are considered stable. After all, the largest companies in the world are tech related and trade on the Nasdaq.

Companies like Intel, Microsoft, Cisco, and Apple  are all part of the Dow Jones Industrials Average, a sign of how far removed we are from the Dotcom bubble.

Like it or not, tech is what is driving growth in America. That said investing in a  Nasdaq ETF give investors an easy way to gain access to the sector in a cost effective way.

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