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The NASDAQ Composite index closed above the 7,000-mark for the first time on Dec 18. Rising hopes for tax cuts have apparently made this possible. Also, new-found optimism in financial stocks, the upbeat sentiments around tech stocks, sturdy U.S. economic growth and a healing labor market pushed up this growth index. Most importantly, the New York Fed beefed up its estimate of the Q4 U.S. GDP to about 4% based on economic strength.
Monday’s gains were mainly boosted by financial stocks with the Nasdaq’s “Other financial” and “Bank index” adding more than 1%, as per Financial Times. SPDR S&P Bank ETF (KBE - Free Report) was up about 1.4% on Dec 18. Investors should thus note that while several corners of the market are presently offering opportunities, a specific benchmark, the Nasdaq, is expected to be on fire as we progress into 2018.
This is especially true as the index is heavy on the technology sector, which is cash rich. Investors should also note that when the U.S. economy shifts gear from recession to recovery, economically sensitive sectors like Information Technology gains momentum. Per Fidelity, greater consumer optimism and a pickup in corporate spending normally give a boost to tech stocks (read: 5 Tech ETFs That Crushed FANG ETFs in 2017).
On the other hand, a pickup in economic activity and tax cuts mean a rise in the U.S. Treasury yield. For example, the 10-year U.S. Treasury yield increased to 2.39% on Dec 18 from 2.35% recorded a day earlier. And a rising rate environment is great for financial stocks.
While many are jittery about stretched valuation and a ‘2000-style crash’ of Nasdaq, most experts are of opinion that these fears are unjustified. Moreover, Nasdaq’s 247% ascent in 2000 came in just seven months while the latest 136.3% climb took as many as five years, suggesting the boom this time is real and sustainable. For investors interested in riding out this uptrend in Nasdaq, we suggest a few ETFs.
This is the largest and the most popular product in the large-cap growth space holding 107 stocks in its basket. Its underlying index – the Nasdaq 100 – includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market based on market capitalization.
Apple dominates the fund with more than 12% allocation, followed by Microsoft with 9.04% allocation. Apart from these two stocks, all the other individual securities have less than 7.66% exposure each in the fund. In terms of sector exposure, the fund is heavily concentrated on Information Technology with about 60% of assets invested. However, Consumer Discretionary and Health Care also get double-digit exposure in the ETF. The fund charges 20 bps in fees (see all Large Cap ETFs here).
First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW - Free Report)
The 106-stock fund consists of companies on the NASDAQ-100 Index. No stock accounts for more than 1.03% of the fund. Technology sector makes up about 31.98% of the portfolio followed by Consumer services (24.5%) and Health Care (19.06%).
Direxion NASDAQ-100 Equal Weighted Index Shares (QQQE - Free Report)
The fund looks to track the NASDAQ-100 Equal Weighted Index. Information Technology takes about 59.3% of the fund followed by 21.1% invested in Consumer Discretionary and 11.5% going to Health Care.
This riskier option is for leveraged ETF investors. The fund gives twice the daily performance of the NASDAQ-100 Index and charges 95 bps in fees (read: 5 Must-Watch ETFs as Nasdaq Hits 6,000).
The 30-stock fund looks to track the Nasdaq US Smart Banks Index, which is a modified factor-weighted index designed to provide exposure to U.S. companies within the banking industry. SunTrust Banks, JPMorgan Chase & Co. and PNC Financial Services Group are the top three stocks of the fund.
First Trust NASDAQ ABA Community Bank Index Fund (QABA - Free Report)
The underlying index is market cap-weighted and includes common stocks of all Nasdaq listed banks and thrifts or their holding companies. No stock accounts for more than 3.31% of the fund.
The fund looks to track the NASDAQ-100 Technology Sector Index. No stock accounts for more than 2.80% of the 37-stock fund. Semiconductors take about 38.86% of the fund while 24.95% of the portfolio goes to software.
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7 ETF Picks as Nasdaq Hits 7,000
The NASDAQ Composite index closed above the 7,000-mark for the first time on Dec 18. Rising hopes for tax cuts have apparently made this possible. Also, new-found optimism in financial stocks, the upbeat sentiments around tech stocks, sturdy U.S. economic growth and a healing labor market pushed up this growth index. Most importantly, the New York Fed beefed up its estimate of the Q4 U.S. GDP to about 4% based on economic strength.
Monday’s gains were mainly boosted by financial stocks with the Nasdaq’s “Other financial” and “Bank index” adding more than 1%, as per Financial Times. SPDR S&P Bank ETF (KBE - Free Report) was up about 1.4% on Dec 18. Investors should thus note that while several corners of the market are presently offering opportunities, a specific benchmark, the Nasdaq, is expected to be on fire as we progress into 2018.
This is especially true as the index is heavy on the technology sector, which is cash rich. Investors should also note that when the U.S. economy shifts gear from recession to recovery, economically sensitive sectors like Information Technology gains momentum. Per Fidelity, greater consumer optimism and a pickup in corporate spending normally give a boost to tech stocks (read: 5 Tech ETFs That Crushed FANG ETFs in 2017).
On the other hand, a pickup in economic activity and tax cuts mean a rise in the U.S. Treasury yield. For example, the 10-year U.S. Treasury yield increased to 2.39% on Dec 18 from 2.35% recorded a day earlier. And a rising rate environment is great for financial stocks.
While many are jittery about stretched valuation and a ‘2000-style crash’ of Nasdaq, most experts are of opinion that these fears are unjustified. Moreover, Nasdaq’s 247% ascent in 2000 came in just seven months while the latest 136.3% climb took as many as five years, suggesting the boom this time is real and sustainable. For investors interested in riding out this uptrend in Nasdaq, we suggest a few ETFs.
PowerShares QQQ ETF QQQ
This is the largest and the most popular product in the large-cap growth space holding 107 stocks in its basket. Its underlying index – the Nasdaq 100 – includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market based on market capitalization.
Apple dominates the fund with more than 12% allocation, followed by Microsoft with 9.04% allocation. Apart from these two stocks, all the other individual securities have less than 7.66% exposure each in the fund. In terms of sector exposure, the fund is heavily concentrated on Information Technology with about 60% of assets invested. However, Consumer Discretionary and Health Care also get double-digit exposure in the ETF. The fund charges 20 bps in fees (see all Large Cap ETFs here).
First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW - Free Report)
The 106-stock fund consists of companies on the NASDAQ-100 Index. No stock accounts for more than 1.03% of the fund. Technology sector makes up about 31.98% of the portfolio followed by Consumer services (24.5%) and Health Care (19.06%).
Direxion NASDAQ-100 Equal Weighted Index Shares (QQQE - Free Report)
The fund looks to track the NASDAQ-100 Equal Weighted Index. Information Technology takes about 59.3% of the fund followed by 21.1% invested in Consumer Discretionary and 11.5% going to Health Care.
ProShares Ultra QQQ (QLD - Free Report)
This riskier option is for leveraged ETF investors. The fund gives twice the daily performance of the NASDAQ-100 Index and charges 95 bps in fees (read: 5 Must-Watch ETFs as Nasdaq Hits 6,000).
First Trust Nasdaq Bank ETF (FTXO - Free Report)
The 30-stock fund looks to track the Nasdaq US Smart Banks Index, which is a modified factor-weighted index designed to provide exposure to U.S. companies within the banking industry. SunTrust Banks, JPMorgan Chase & Co. and PNC Financial Services Group are the top three stocks of the fund.
First Trust NASDAQ ABA Community Bank Index Fund (QABA - Free Report)
The underlying index is market cap-weighted and includes common stocks of all Nasdaq listed banks and thrifts or their holding companies. No stock accounts for more than 3.31% of the fund.
First Trust NASDAQ 100 Technology (QTEC - Free Report)
The fund looks to track the NASDAQ-100 Technology Sector Index. No stock accounts for more than 2.80% of the 37-stock fund. Semiconductors take about 38.86% of the fund while 24.95% of the portfolio goes to software.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>