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Is First Trust NASDAQ100 Equal Weighted ETF (QQEW) a Strong ETF Right Now?

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The First Trust NASDAQ100 Equal Weighted ETF (QQEW - Free Report) was launched on 04/19/2006, and is a smart beta exchange traded fund designed to offer broad exposure to the Style Box - Large Cap Growth category of the market.

What Are Smart Beta ETFs?

The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.

A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.

However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.

These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.

The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.

Fund Sponsor & Index

The fund is managed by First Trust Advisors, and has been able to amass over $1.08 billion, which makes it one of the average sized ETFs in the Style Box - Large Cap Growth. This particular fund, before fees and expenses, seeks to match the performance of the NASDAQ-100 Equal Weighted Index.

The NASDAQ-100 Equal Weighted Index is the equal-weighted version of the NASDAQ-100 Index which includes 100 of the largest non-financial securities listed on NASDAQ based on market capitalization.

Cost & Other Expenses

For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.

Operating expenses on an annual basis are 0.58% for QQEW, making it on par with most peer products in the space.

The fund has a 12-month trailing dividend yield of 0.29%.

Sector Exposure and Top Holdings

ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Information Technology sector - about 42.20% of the portfolio. Consumer Discretionary and Healthcare round out the top three.

Looking at individual holdings, Activision Blizzard, Inc. (ATVI - Free Report) accounts for about 1.45% of total assets, followed by Marriott International, Inc. (MAR - Free Report) and The Kraft Heinz Company (KHC - Free Report) .

Its top 10 holdings account for approximately 12.25% of QQEW's total assets under management.

Performance and Risk

So far this year, QQEW has lost about -19.21%, and is down about -6.06% in the last one year (as of 03/15/2022). During this past 52-week period, the fund has traded between $95.58 and $120.91.

The ETF has a beta of 1.04 and standard deviation of 24.56% for the trailing three-year period, making it a medium risk choice in the space. With about 103 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust NASDAQ100 Equal Weighted ETF is a reasonable option for investors seeking to outperform the Style Box - Large Cap Growth segment of the market. However, there are other ETFs in the space which investors could consider.

Vanguard Growth ETF (VUG - Free Report) tracks CRSP U.S. Large Cap Growth Index and the Invesco QQQ (QQQ - Free Report) tracks NASDAQ-100 Index. Vanguard Growth ETF has $71.72 billion in assets, Invesco QQQ has $169.31 billion. VUG has an expense ratio of 0.04% and QQQ charges 0.20%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Large Cap Growth.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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