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Guide to the Nasdaq ETF Investing

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The Nasdaq Composite Index has been hitting a series of record highs since the start of the pandemic. In fact, the tech-heavy index topped 15,000 for the first-time last month. The year 2020 can be fully attributed to the Nasdaq. Though the tech-heavy Nasdaq was out of favor in the beginning of 2021 on rising rate worries, it regained momentum lately.

Inside the Strength of Nasdaq

There are more than 3300 stocks in the Nasdaq Composite. In terms of securities, healthcare has the maximum stocks of 986 followed by financials (824), industrials (313) and technology (397). The index puts 47.97% weight in the Information Technology sector, followed by Consumer Discretionary (20.28%), Healthcare (10.31%), Industrials (6.33%) and Telecommunications (4.39%). Hence, the Nasdaq’s performance is heavily- dependent on the tech sector.

Nasdaq outdid others in the peak of the pandemic due to greater rallies in the technology sector or socially-distant stocks, and continues to outperform even after the reopening of economies. While rates are rising, Fed taper talks eased a bit lately.

Presently, the U.S. central bank is purchasing $80 billion of Treasuries and $40 billion of mortgage-backed securities each month, while benchmark interest rates are between 0% and 0.25%. Continuation of such a policy is making the tech stocks stronger.

Investors should note that decade-long cheap money inflows and global economic improvement (before the virus outbreak) made growth stocks and the tech-heavy ETF winners last decade. Rising consumer spending on technology, a 5G boom, expectations of higher smartphone sales, the announcement of the phase-one U.S.-China trade deal and coronavirus-induced social distancing propelled the tech and semiconductor space.

Performance of Nasdaq Through the Past Decade

Since 2012, the Nasdaq offered double-digit annual return in seven years with 2020 bringing about the highest of 43.64%. Worst performance of the Nasdaq was recorded in 2018 with losses of 3.88%. The year 2015 and 2016 recorded single-digit gains of 5.73% and 7.50%, respectively. If we look at this year’s performance, the second quarter offered 9.49% gains in the Nasdaq and the first quarter offered 2.78% gains for the Nasdaq.

Moreover, the latest bouts of data indicate that the economy is recovering , though at a moderate pace. With expectations that the index will stay strong in the coming days, one can play the momentum with the below-mentioned ETFs.

ETFs in Focus

Invesco QQQ (QQQ - Free Report)

This ETF provides exposure to the 103 largest domestic and international non-financial companies listed on the Nasdaq by tracking the Nasdaq-100 Index. QQQ is one of the largest and most popular ETFs in the large-cap space, with AUM of $196.6 billion. It charges investors 20 bps in annual fees.

Invesco NASDAQ 100 ETF (QQQM - Free Report)

The underlying NASDAQ-100 Index includes securities of 100 of the largest domestic and international nonfinancial companies listed on Nasdaq. The fund charges 15 bps in fees. The fund has an AUM base of $1.83 billion.

First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW - Free Report)

Holding 102 stocks, this fund provides equal exposure to the stocks of the Nasdaq-100 Index. It has amassed $1.37 billion in its asset base. It charges 58 bps in annual fees.

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

This ETF tracks the Nasdaq Composite Index, holding a broad basket of about 1000 stocks. It has AUM of $4.59 billion. The expense ratio comes is 0.21%.

ProShares Ultra QQQ (QLD - Free Report)

Investors seeking 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. The fund has AUM of $5.58 billion and charges 95 bps in fees and expenses.

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 the daily performance, with the same expense ratio of QLD. The fund has managed AUM of $14.9 billion.