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Nasdaq at New Peak: ETFs to Tap the Surge

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After being beaten down over the past few months, the tech-heavy Nasdaq Composite Index staged an impressive comeback, courtesy of the resurgence in tech stocks. Notably, the benchmark closed at a new all-time high on Jun 22, having gained 10.6% so far this year.  

The tech giants like Facebook (FB - Free Report) , Apple (AAPL - Free Report) , Netflix (NFLX - Free Report) , Microsoft (MSFT - Free Report) , (AMZN - Free Report) and Alphabet (GOOGL - Free Report) — the so-called FANMAG group — have gained 4.5%, on average, over the past month. This is much higher than the broad market gains of 1.4% for the S&P 500 Index. Optimism surrounding the economic recovery and Fed Chair Jerome Powell’s testimony rekindled interest in the growth stocks (read: 5 ETFs at the Heart of Last Week's Tech Strength).

The Fed reiterated that the increase in inflation is a temporary phenomenon and it will not hike interest rates. Instead, it will prioritize a "broad and inclusive" revival of the job market. This led to the buying of the tech and other growth stocks, which became cheap after being hit by inflation fears in recent months. According to Barclays data, the average forward price-to-earnings ratio for the FANMAG group is currently 29.9 times, down from a peak of 40 times during the middle of last year and just a tick above the 28 times seen in December 2019 before the pandemic began.

Barclays stated that the FANMAG stocks might be even bigger bargains than they were in December 2019. This is because stocks are generally priced off a risk-free rate, in most cases the yield on Treasuries. The lower the bond yield, the more the stocks are generally worth, other things being equal. But that has not been the case of late. The 10-year yield currently hovers around 1.47%, down from 1.8% in December 2019. Despite the lower bond yields, FANMAG earnings multiples remained near their 2019 levels, suggesting that the valuations are relatively inexpensive, thus making them immensely attractive for investors. Similarly, valuations for most growth stocks have also been moderated over time, suggesting more gains ahead for the Nasdaq Index.

Investors looking to ride the Nasdaq bulls could consider the following ETFs. These funds might see massive trading volumes in the days ahead, given the bullish fundamentals.

Invesco QQQ (QQQ - Free Report)

This ETF provides exposure to the 102 largest domestic and international non-financial companies listed on the Nasdaq by tracking the Nasdaq 100 Index. Information technology accounts for 48.4% of the assets while communication services and consumer discretionary round off the next two spots. QQQ is one of the largest and the most-popular ETFs in the large-cap space with AUM of $167.6 billion and an average daily volume of 38.2 million shares. It charges investors 20 bps in annual fees. The fund has risen 11% so far this year and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

Invesco NASDAQ 100 ETF (QQQM - Free Report)

This fund is identical to QQQ tracking the NASDAQ-100 Index but comes with lower annual fees of 15 bps. It holds 104 securities in its basket with higher concentration on the top three firms. QQQM has accumulated $1 billion in its asset base since its debut last October and trades in an average daily volume of 110,000 shares. The ETF has been up 11.1% so far this year (read: Best ETFs for Long-Term Investors).  

First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW - Free Report)
Holding 102 stocks, this fund provides equal exposure to stocks on the Nasdaq-100 Index. It amassed $1.2 billion in its asset base while it trades in moderate volumes of nearly 67,000 shares a day, on average. It charges 58 bps in annual fees and has gained 8.8% in the year-to-date period. QQEW carries a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

Simplify Nasdaq 100 PLUS Convexity ETF QQC

This ETF is newly debuted in the space, having accumulated $2.8 million in its asset base since last December. It intends to track a basket of large-cap US growth stocks while boosting performance during extreme market moves up or down via a systematic options overlay. The fund’s core holding provides investors with Nasdaq 100 Index exposure. A modest option overlay budget is then deployed into a series of options positions that help create convexity in the fund. QQC charges 45 bps and trades in a paltry average daily volume of about 2,000 shares. The fund has gained 8.7% so far this year.

Fidelity Nasdaq Composite Index Tracking Stock (ONEQ - Free Report)

This ETF tracks the Nasdaq Composite Index, holding a broad basket of 1,021 stocks. It has AUM of $4.1 billion and an average daily volume of around 269,000 shares. The expense ratio comes in at 0.21%. The product has gained 10.6% in the year-to-date frame and carries a Zacks ETF Rank  3 with a Medium risk outlook.

ProShares Ultra QQQ (QLD - Free Report)

Investors aiming to make big gains in a short span can bet on QLD. It provides twice the return of the NASDAQ-100 Index’s daily performance and exchanges 4.8 million shares in hand, on average. The fund has an AUM of $4.8 billion and charges 95 bps in fees and expenses. It has surged 20% so far this year.

ProShares UltraPro QQQ (TQQQ - Free Report)

For a more bullish approach, TQQQ could be an excellent choice. It also tracks the NASDAQ-100 Index but offers thrice the returns of its daily performance with the same expense ratio of QLD. The fund amassed $11.6 billion in AUM and trades in a heavy volume of 31.2 million shares, on average. TQQ has returned nearly 27% in the year-to-date period (read: 10 Most-Heavily Traded ETFs).

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