A Beginner's Guide To Nasdaq 100 Etf Investing

The Nasdaq-100 index is a collection of the 100 largest non-financial stocks trading on the Nasdaq exchange. It includes major US technology companies from sectors such as hardware and software, telecommunications, retail, and biotechnology. There are multiple ways to invest in the Nasdaq-100, including exchange-traded funds (ETFs), mutual funds, options, futures, and annuities. ETFs are a popular choice for investors as they offer the benefits of a diversified portfolio and can be easily traded like stocks. This paragraph will discuss the different ways to invest in the Nasdaq-100 ETF, including the benefits and risks of each approach.

Nasdaq index funds

The Invesco NASDAQ 100 ETF (QQQM) is one popular option for investors seeking exposure to the Nasdaq-100 Index. This fund provides access to innovative large- and mega-cap companies and has a 4-star overall Morningstar rating as of September 30, 2024. It is designed to track the Nasdaq-100 Index, a well-known benchmark, and provides access to some of the world's most innovative companies in a cost-effective and tax-efficient ETF structure.

Another option for investors interested in Nasdaq index funds is the Shelton NASDAQ-100 Index Direct (NASDX) ETF. This fund has been trading since 2000 and has a strong 5-year and 10-year performance track record. The expense ratio for this fund is 0.52%, which means that for every $10,000 invested, there is an annual cost of $52.

When considering investing in Nasdaq index funds, it is important to keep in mind the level of risk involved. While these funds provide exposure to a diverse range of companies, they are still subject to market risk and can fluctuate in value. It is always recommended to carefully consider your investment goals, conduct thorough research, and, if necessary, seek advice from a qualified financial advisor before making any investment decisions.

Overall, Nasdaq index funds can be a great way to gain exposure to innovative and leading companies, particularly in the technology sector, through a diversified investment vehicle.

Leveraged Nasdaq index funds

Leveraged ETFs are a type of exchange-traded fund that provides investors with amplified returns on the underlying index. These ETFs employ various investment strategies, such as the use of derivatives, swaps, and futures contracts, to achieve their objectives. Due to their design, leveraged ETFs are considered much more complex instruments compared to traditional ETFs and are more suitable for experienced investors with a high-risk tolerance.

The Nasdaq-100 Index is a popular underlying index for leveraged ETFs, with the ProShares UltraPro QQQ (TQQQ) being the most traded fund in this category. TQQQ aims to deliver three times the daily performance of the Nasdaq-100 Index, which is composed of the 100 largest domestic and international non-financial companies listed on the Nasdaq Stock Market. This means that if the Nasdaq-100 Index increases by 1% in a day, TQQQ is expected to rise by 3%.

Another popular ETF is the ProShares Ultra QQQ (QLD), which offers twice the daily returns of the Nasdaq-100 Index. QLD has managed assets under management (AUM) of $4 billion and sees an average daily trading volume of 1.6 million shares.

It is important to note that leveraged ETFs are typically short-term trading vehicles, and most investors exit their positions within a few days. The compounding effect of these funds can lead to significant deviations from the target return when held for longer periods. Additionally, leveraged ETFs are riskier investments than their non-leveraged counterparts due to their sensitivity to daily movements in the underlying securities.

Leveraged ETFs are not confined to a specific sector or asset class, allowing investors to access a diverse range of investment opportunities. However, they often come with higher costs and lower tax efficiency due to the use of derivatives.

When considering investing in leveraged Nasdaq index funds or any other leveraged ETFs, it is essential to carefully assess your risk tolerance, investment goals, and time horizon. These products are designed for sophisticated investors who actively monitor their portfolios and are willing to accept higher levels of risk for the potential of amplified returns.

Short Nasdaq index funds

Short Nasdaq-100 index funds are designed for investors who want to profit from a decline in the Nasdaq-100 Index in the short term. These funds aim to achieve negative returns that are the opposite of the index's performance. Here are some key points about short Nasdaq index funds:

Inverse ETFs

Inverse or leveraged inverse ETFs provide a way to short the Nasdaq-100 Index. These ETFs create a short position or a leveraged short position in the index through various financial instruments like swaps, options, and futures contracts. Here are some examples:

• ProShares Short QQQ (PSQ): This ETF offers unleveraged inverse exposure to the daily performance of the Nasdaq-100 Index. It has accumulated assets under management (AUM) of around $404.9 million and an average daily trading volume of approximately 608,000 shares. The fund charges 95 basis points (bps) in annual fees.
• ProShares UltraShort QQQ (QID): This ETF provides two times (2x) inverse exposure to the Nasdaq-100 Index, charging 95 bps in annual fees. It has $392 million in AUM and an average daily volume of 5 million shares.
• ProShares UltraPro Short QQQ (SQQQ): Aimed at investors with a more bearish outlook and higher-risk tolerance, this ETF offers three times (3x) inverse exposure to the index. It has $378.2 million in AUM and an average daily volume of 9.1 million shares, charging 95 bps in annual fees.

Short Nasdaq-100 ProFund

The Short Nasdaq-100 ProFund seeks daily investment results, excluding fees and expenses, that are -1x the return of the Nasdaq-100 Index for a single day. In simpler terms, it aims to deliver the opposite performance of the index on a daily basis. This fund underwent a reverse split on March 10, 2023, and has a net expense ratio of 1.78%.

Important Considerations

It's crucial to remember that short Nasdaq index funds are typically designed for short-term traders. Due to their daily rebalancing, their performance can deviate significantly from the underlying index over longer periods. Additionally, these funds can lead to substantial losses compared to traditional funds in volatile markets. Therefore, they are more suitable for investors with a high-risk tolerance and a bearish outlook on the Nasdaq-100 Index in the near term.

Nasdaq-tracking mutual funds

The Nasdaq-100 index has been a strong performer over the long term, delivering a 458% total return over the past decade, outperforming the Dow, S&P 500, and the broader Nasdaq Composite. This has led to a growing number of Nasdaq-100 mutual funds and ETFs that allow investors to benefit from the index's performance.

One of the most popular Nasdaq-100 mutual funds is the Victory Nasdaq-100 Index Fund (USNQX), which has been in operation since October 2000 and boasts impressive returns, ranking in the top 10% of funds in its category for long-term performance. The fund has assets under management of $7 billion and an expense ratio of 0.42%, which is relatively low compared to similar funds.

Another option is the Invesco Nasdaq 100 Index Fund (IVNQX), which was launched to allow investors to track the Nasdaq-100 index in mutual fund form. This fund is aimed at retirement accounts that typically cannot access ETFs. It has assets under management of $101.6 million.

ETF providers

There are several providers of Nasdaq 100 ETFs, including:

• Invesco – Invesco offers the QQQ ETF, which tracks the Nasdaq 100 and has been available in the US since 1999. The company also provides the Invesco Nasdaq 100 ETF (QQQM), a newer fund launched in late 2020 with lower fees. In addition, Invesco offers the ESG Nasdaq 100 ETF (QQMG), which invests in Nasdaq-100 companies that meet specific environmental, social, and governance (ESG) criteria.
• Direxion – Direxion provides an interesting take on the Nasdaq-100 with its Direxion Nasdaq-100 Equal Weighted Index Shares (QQQE). This fund invests in an equal-weighted version of the index, where each of the 100 stocks is allocated 1% of assets, regardless of market capitalisation.
• IShares – iShares offers the iShares Nasdaq 100 UCITS ETF (Acc) and iShares Nasdaq 100 UCITS ETF (DE).
• Amundi – Amundi provides the Amundi Nasdaq-100 UCITS ETF with various classes, including Acc, Dist, and USD.
• AXA IM – AXA IM offers the AXA IM Nasdaq 100 UCITS ETF USD Acc.
• Xtrackers – Xtrackers provides the Xtrackers Nasdaq 100 UCITS ETF 1C.
• Deka – Deka offers the Deka Nasdaq-100® UCITS ETF.

These ETF providers give investors a range of options to choose from when considering investing in the Nasdaq-100 index.

Frequently asked questions