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Nasdaq is Burning Hot: How to Make the Most of it With ETFs

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Wall Street has been enjoying a stellar ride after being badly beaten down by the COVID-19 pandemic. This is especially thanks to improving economic data, progress in coronavirus vaccine or treatments, and a massive stimulus program by the Fed and government.

Though the two major indices – the S&P 500 and Dow Jones – are in red from a year-to-date look, the Nasdaq has been hitting new highs. It has gained nearly 13% in the first half of this year. We have highlighted some reasons for this outperformance below:

Pandemic Boost

The index has been mainly powered by the soaring technology sector, which accounts for nearly half of the portfolio. Though the worst pandemic had halted business activities for nearly two months, impacting growth of each and every sector, it has given a strong boost to stay-at-home stocks. These stocks mostly belong to the technology sector, especially cloud computing, gaming and e-commerce as people opted to work and stay entertained at home. Investors have also largely piled up software shares which are apparently more insulated from the impacts of the virus.

Buoyed by this trend, many FANG stocks and its likes have hit new all-time highs. In fact, the combined market value of the big four companies — Facebook (FB - Free Report) , Apple (AAPL - Free Report) , Amazon (AMZN - Free Report) and Microsoft (MSFT - Free Report) — is now close to $5 trillion (read: 5 Niche Tech ETFs That Have Gained More Than 30% in 1H).

Consumer services’ stocks, the second-largest holding on the Nasdaq index, also moved up on a the surge in online shopping due the forced closure of retail stores.

Vaccine Hopes

A number of pharma and biotech companies, whether big or small, are racing to create and develop vaccine or a treatment to fight against the novel coronavirus disease. This opportunity has resulted in a strong rally for the stocks in the healthcare sector, which is the third top sector and accounts for double-digit exposure in the Nasdaq index (read: Moderna a Step Closer to Coronavirus Vaccine: ETFs to Gain).  

Broad Market Rally

With the easing of lockdown measures, economic activities have picked up, resulting in higher consumer confidence. The latest bouts of data indicate that economic damage from the coronavirus pandemic was less severe than anticipated.

Investors seeking to ride the Nasdaq bulls could consider the following ETFs. These funds might see massive trading volumes in the days ahead if the trend prevails.

Invesco QQQ (QQQ - Free Report)

This ETF provides exposure to 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 $115.2 billion and average daily volume of 51.8 million shares. It charges investors 20 bps in annual fees and has risen 17.5% so far this year. The fund sports a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: Nasdaq Continues to Excel : 5 Best Stocks in ETF).

First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW - Free Report)
 
Holding 104 stocks, this fund provides equal exposure to stocks onthe Nasdaq-100 Index. It has amassed $843.6 million in its asset base while it trades in lower volumes of nearly 113,000 shares a day on average. It charges 59 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.

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

This ETF tracks the Nasdaq Composite Index, holding a broad basket of 992 stocks. It has AUM of $2.7 billion and average daily volume of around 75,000 shares. The expense ratio comes in at 0.21%. The product has gained 27.8% in the year-to-date frame and carries a Zacks ETF Rank #2 with a Medium risk outlook (read: Nasdaq ETF Hits New 52-Week High).

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 and exchanges around 2 million shares in hand on average. The fund has an AUM of $2.6 billion and charges 95 bps in fees and expenses. It has surged 22.8% 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 the daily performance, with the same expense ratio of QLD. The fund has managed an AUM of $6.3 billion and sees nearly 41 million shares in average daily volume. TQQ had returned nearly 15.3% in the year-to-date period.

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