Nasdaq indices (Nasdaq 100 Index and the Nasdaq Composite Index) track stocks traded on the Nasdaq exchange. Contrary to what many traders and investors believe, these indices do not only include tech stocks. The indices include stocks in consumer discretionary, health care, financials, and technology, just to name a few. However, tech stocks primarily dominate the index, which could explain the common misnomer.
Typically, the indices tends to be more volatile than the S&P 500 Index and Dow Jones Industrial Average. Now, in general, high risk means that there is a higher potential reward. For those interested in gaining exposure to an index predominantly focused on tech stocks, here are some exchange-traded funds (ETFs) tracking these indices.
PowerShares QQQ Trust
The PowerShares QQQ (QQQ) was issued by Invesco and is one of the largest ETFs tracking the Nasdaq 100 Index. Now, the PowerShares QQQ will generally hold all stocks included in the index, the fund’s underlying index. The index includes 100 of the largest domestic, as well as international, non-financial companies listed on the exchange, based on market capitalization.
The PowerShares QQQ has total net assets of over $50B. Additionally, it’s a very liquid ETF, with over 30M shares traded a day, on average. The PowerShares QQQ is a relatively cheap ETF, charging a total expense ratio of just 0.20% per year.
Here’s a look at QQQ’s performance on the weekly chart:
First Trust NASDAQ-100 Equal Weighted Index Fund
The First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW) is another ETF that provides exposure to the Nasdaq 100 Index. However, unlike QQQ, QQEW aims to replicate the general price and yield of the Nasdaq 100 Equal Weighted Index. Each of the securities in the index is given a weight of 1% of the index. Moreover, the index is rebalanced quarterly. That in mind, smaller companies’ performances also contribute as much as large-cap companies within the index. Consequently, one company’s performance should not dominate QQEW’s performance.
Take a look at QQEW’s performance on the weekly chart:
Keep in mind the ETF charges an annual net expense ratio of 0.60%, which is more expensive than QQQ. Additionally, QQEW is fairly illiquid, relative to the QQQ, only trading 60K per day on average.
Fidelity Nasdaq Composite Index ETF
The Fidelity Nasdaq Composite Index Tracking Stock ETF (ONEQ) aims to provide investment results corresponding to the general price and yield performance of the Nasdaq Composite Index. The ETF invests a substantial amount, generally at least 80%, of its assets in common stocks included in the index. ONEQ uses statistical sampling techniques in order to take into different factors to structure a portfolio of securities listed in its underlying index.
Here’s a look at ONEQ on the weekly chart:
The bottom line: There are ETFs you could pick to trade if you want exposure to the NASDAQ 100 or NASDAQ Composite Index. When you’re selecting an ETF you trade, you need to make sure it’s liquid enough for you to get out, and the fees are not too expensive. Moreover, it helps to read the prospectus to really understand how the ETF works.
Jeff Bishop is lead trader at WeeklyMoneyMultiplier.com and widely recognized as the Mensa Trader. He runs short-term trading strategies, using stocks, options and leveraged ETFs.
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