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Wil Nasdaq ETFs Win in 2021 After the Best Year Since 2009?

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Optimism swept the broader market in the fourth quarter of 2020 with the S&P 500 and the Dow Jones hitting new highs to close out the year. Decent earnings releases, hopes of an economic recovery in 2021, positive developments on vaccines, and easy global monetary policy have aided the markets this year despite the COVID-19 challenges.

However, the showstopper was the tech-heavy Nasdaq. A tech-driven rally led the Nasdaq Composite to jump about 44% in 2020. This made 2020 the best year for the index since 2009’s turnaround after surviving the Global Financial Crisis, per an article published on barrons.com.

Rising consumer spending on technology, coronavirus-induced social distancing leading to remote communications, the surge of e-commerce to online payments, stellar growth in the video-gaming segment, a 5G boom and expectations of higher smartphone sales propelled the tech and semiconductor space in 2020, taking the Nasdaq to this height.

Will the Winning Momentum Continue in 2021?

Investors should note that the Nasdaq-100-based ETF (QQQ - Free Report)  (up 11.2%) performed almost in line with theS&P 500-based ETF (SPY - Free Report)  (up 10.9%) in the past three months and lagged the small-cap ETF (IWM - Free Report)  (up 28.8%) greatly.

This happened because of the vaccine rollout which brightened the appeal for the coronavirus-hit investing zones or the value investing options. In fact, hopes of faster-than-expected recovery dulled some of the shine in the tech stocks over the past three months.

But the new strain of coronavirus can charge up the tech space in 2021 all over again. The faster-spreading variant of the virus has been discovered in more places in the United States, including California. However, everything depends on the efficacy of the recently rolled-out vaccines. If the vaccines fail to restrain the new strain of virus, fears may flare up and the Nasdaq will again rule.

However, if things turn right on the vaccine front and the latest stimulus bill is bumped up to $2,000 from $600 in the Senate, small caps will likely rule large caps and the gains in the Nasdaq may lag that of the small-cap index Russell 2000.

But then, with digitization taking the spotlight, we expect the winning momentum of tech stocks to continue. Biotechnology is another great area with genomics grabbing limelight. These two segments should continue to march ahead with or without virus scare.

Since the Nasdaq has great exposure to those two specific segments, 2021 has high chances of being a rewarding year for the index. In fact, the Nasdaq’s relatively restrained gains in the fourth quarter of 2020 may open up some great opportunities in early 2021.

Past Record Shows More Possibilities for Nasdaq

The Nasdaq clocked double-digit gains for two years in a row in 2020. DataTrek Research shows that the index's jump in double digits for at least three years in a row has happened four times since 1972, as quoted on investors.com. It means that the Nasdaq may witness another year of double-digit returns. "But it's tough to surprise markets three years in a row," said DataTrek co-founder Nicholas Colas, as quoted on investors.com.

The investors.com article went on to point out that since making its debut in 1972, the Nasdaq has logged four years of gains greater than 40%, according to Investor's Business Daily research. The best year after such a monumental surge was a 16.9% increment in 2010, when the market was still struggling with the last financial crisis. With the global markets still rebounding from a virus-related slump, another year of double-digit gains is highly likely for the Nasdaq.

Against this backdrop, below we highlight a few Nasdaq ETFs that should be kept track on.

Nasdaq ETFs in Focus

Nasdaq ETFs like Invesco QQQ (QQQ - Free Report) , First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW - Free Report) , First Trust NASDAQ Technology Dividend Index Fund (TDIV - Free Report) and Fidelity Nasdaq Composite Index Tracking Stock (ONEQ - Free Report) can be bought on the relative underperformance (to small caps). iShares Nasdaq Biotechnology ETF (IBB - Free Report) has added only about 11% in the fourth quarter (way behind the gains in the small-caps). So, this area could also recoil in the coming months.

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