The Nasdaq Stock Exchange is home to some of the stock market’s most attractive investments, including fast-growing technology companies. Investors can own all of them by buying a Nasdaq index fund, making it easier to own leading stocks such as the Magnificent 7. However, there are many different such funds, so you need to be careful about what exactly you buy.
Here are the top Nasdaq exchange-traded funds (ETFs) and some important things to look out for.
Top 6 stocks in Nasdaq ETF
The following funds invest primarily in the Nasdaq 100 Index. The Nasdaq 100 Index includes the top 100 non-financial stocks traded on the Nasdaq Stock Exchange, including Apple, Amazon, Microsoft, Alphabet, Meta Platforms, and Netflix. Do not confuse it with the Nasdaq Composite Index, which includes all stocks traded on that exchange.
Other ETFs below include leveraged funds and short funds. Using leveraged funds, investors may be able to earn greater returns than would be provided by the index itself. Short funds allow investors to bet against an index and profit when the index declines. (Data is as of May 13, 2024.)
Invesco QQQ Trust (QQQ)
Although this fund aims to mimic the Nasdaq 100 index, it actually dramatically outperforms that index.
- Annual revenue (5 years): 19.8%
- Expense ratio: 0.20 percent
Invesco NASDAQ 100 ETF (QQQM)
This fund (also from Invesco) also tracks the Nasdaq 100, but does so at a lower cost. This fund has been around for less than five years, but its three-year returns are comparable to his QQQ returns.
- Annual revenue (3 years): 11.5 percent
- Expense ratio: 0.15 percent
ProShares Ultra Pro QQQ (TQQQ)
The leveraged fund uses derivatives to boost the returns of the Nasdaq 100, with the goal of delivering three times the daily return of the index. It also charges a healthier expense ratio for its profits.
- Annual revenue (5 years): 31.8%
- Expense ratio: 0.88%
Direxion NASDAQ-100 Equal Weight ETF (QQQE)
The fund has an equal weighting in Nasdaq 100 stocks, rather than the typical weighting that leans heavily toward the largest tech stocks.
- Annual revenue (5 years): 13.8%
- Expense ratio: 0.35 percent
ProShares Ultra Pro Short QQQ (SQQQ)
This fund rises when the Nasdaq 100 falls, allowing you to short the index with a convenient fund.
- Annual revenue (5 years): -58.4%
- Expense ratio: 0.95 percent
Fidelity Nasdaq Composite Index ETF (ONEQ)
This affordable fund tracks the Nasdaq Composite Index (not the Nasdaq 100 Index), giving investors broader exposure to the larger index and reducing concentration in the biggest tech stocks. .
- Annual revenue (5 years): 16.8%
- Expense ratio: 0.21%
ETF risks
While ETFs are an attractive way to invest in the market and allow you to earn the returns of a specific index, they still have drawbacks, including:
- Volatility: Like individual stocks, stock ETFs can be volatile, but they tend to be less volatile than individual stocks. You need to understand that stocks can go up in value in the short term, and you need to hold on to them for years to reap big gains in the long term.
- Tracking risk: A fund that tracks a particular index may not provide the exact return of that index. This is called tracking risk. In the case of some of the funds mentioned above, this actually works in the investor’s favor, as the funds significantly outperform the index. But it can easily work in the opposite direction if the fund fails to meet its goals.
- Structure cost: By their nature, leveraged and short funds incur additional costs as derivative positions expire and must be periodically reestablished. These costs will eat into your profits over time, even if your business is performing well.
The Nasdaq 100 is a popular stock index, but there are other popular options, especially for investors who want broader diversification than just the biggest tech stocks. The most popular index is the Standard & Poor’s 500, which includes stocks from every major industry. S&P 500 and Nasdaq 100 funds consistently rank among the best ETFs, offering high returns and low costs.
conclusion
ETFs provide a quick and easy way to invest in the Nasdaq Stock Index and provide an easy way to take advantage of the strong returns available there. However, be sure to understand exactly what you are buying and whether it fits your investment objectives and risk tolerance. Work with one of the best brokers for ETF investing and take advantage of a variety of features that will help you succeed.
Editorial Disclaimer: All investors are encouraged to conduct their own independent research on any investment strategy before making any investment decisions. Additionally, investors should note that past performance of an investment product does not guarantee future price increases.
