With some 3,700 companies, the NASDAQ has more trading volume than any other stock exchange in the world. The NASDAQ 100 is one of the world’s most widely-followed indexes, measuring the performance of 100 of the largest domestic and international nonfinancial companies listed on the NASDAQ Stock Market. As the ETF industry has boomed, billions of dollars have flowed into funds offering exposure to this benchmark, as many investors have made the NASDAQ a core portfolio holding.
The NASDAQ 100 Index is tilted towards technology companies — this sector accounts for about 63% of the benchmark — but also includes some big names in other industries. Starbucks, Staples, Urban Outfitters, Amgen, and Teva Pharmaceutical are just a handful of the consumer discretionary and health care stocks with material weightings in the index. The concentration in the tech sector makes NASDAQ exposure ideal for investors looking to overweight this part of the economy while still maintaining some level of diversification.
Earlier this year, we took a look at five ways to play the S&P 500 through ETFs. Today, we take a look at ETFs offering various types of exposure to the NASDAQ, beginning with a well known fund and continuing through to some more obscure products. To get more reports on unique investment ideas, sign up for our free ETF newsletter.
- PowerShares QQQ Trust (QQQQ): This ETF is one of the largest and most popular funds available, with a market capitalization of more than $15 billion and average daily volume in excess of 100 million shares. Of ETFs tracking the “big 3″ indexes, QQQQ has enjoyed the best 2009: its gain of about 52% is well ahead of DIA (up 19.3%) and SPY (up 23.8%).
- First Trust NASDAQ 100 Equal Weighted Index Fund (QQEW): The underlying holdings of this ETF are identical to QQQQ, but the strategy used to determine the allocation given to each components is very different. QQQQ follows a modified market capitalization-weighted benchmark, giving an aggregate weighting of about 20% to Apple and Microsoft. QQEW is an equal-weighted fund, offering approximately equal exposure to each of its 100 components. This seemingly minor tweak in allocation methodologies has translated into a material difference in returns this year: QQEW is up by about 58%, putting it 600 basis points ahead of QQQQ.
- First Trust NASDAQ 100 Technology Sector Index Fund (QTEC): This ETF is designed to track the performance of a sub-set of the NASDAQ-100 Index including only stocks classified as technology companies. Unlike QQQQ, the benchmark underlying QTEC is an equal-weighted index, giving the same allocation to each component company (38 as of December 21). QTEC has gained about 77% so far this year, illustrating the stellar performance in 2009 of the technology sector.
- First Trust NASDAQ 100 Ex-Technology Sector Index Fund (QQXT): This ETF excludes the technology component of the NASDAQ 100 Index, providing investors a way to access this benchmark without taking on tech exposure. QQXT has its biggest weightings in the consumer services and health care sectors, with industrials and telecom also receiving material allocations. Like its tech-only counterpart, QQXT follows an equal-weighted index, spreading its holdings across approximately 68 stocks.
- ProShares Short QQQ (PSQ): For investors who think the NASDAQ is due for a pullback, ProShares provides a way to gain inverse exposure to the benchmark. PSQ is designed to deliver daily investment results that correspond to the inverse of the daily performance of the NASDAQ 100 Index. In 2009, this ETF has had a near perfect inverse correlation with QQQQ on a daily basis.
Disclosure: No positions at time of writing.