The Nasdaq Investor: Strategies For Success

The Nasdaq-100 Index is a list of the 100 largest companies by modified market cap that trade on Nasdaq exchanges. It is possible to gain exposure to the index without buying the individual stocks included in the index. There are multiple ways to invest in the Nasdaq-100, including exchange-traded funds (ETFs), mutual funds, options, futures, and annuities.

ETFs are the simplest way for investors to get exposure to the Nasdaq-100. For example, the Invesco EQQQ Nasdaq 100 UCITS ETF charges 0.3% and fully replicates the Nasdaq 100 Index.

Another option is to invest in the Nasdaq via the iShares Nasdaq 100 or L&G Global Technology Index funds. The former is an ETF that offers targeted exposure to 100 of the largest non-financial companies listed on the Nasdaq. The latter is an index fund designed to track the performance of the FTSE World Technology Index, which includes Apple, Microsoft, Alphabet (Google's parent company), and Nvidia.

Exchange-traded funds (ETFs)

ETFs are a popular and effective way to invest in the Nasdaq. They are 'passive' investments that rely on computer algorithms to replicate a particular index. ETFs are simple and cheap, and they do what they say on the tin. For example, the Invesco EQQQ Nasdaq 100 UCITS ETF charges 0.3% and fully replicates the Nasdaq 100 Index. A £1,000 investment would cost £3, and there may be additional dealing costs.

The charges levied by an 'active' fund, which relies on human judgment for stock selection, can be 10 times higher than for a passive alternative. The benefit of ETFs is that they offer diversification, low costs, and the ability to trade shares live during the trading day. You also have the convenience of buying a fractional share of a Vanguard ETF for as little as $1.

Some examples of ETFs that track the Nasdaq include:

• Invesco QQQ ETF
• IShares Nasdaq-100 UCITS ETF (DE)
• Fubon Nasdaq-100 ETF (622)
• Invesco Optimum Yield Diversified Commodity Strategy No K-1 ET (PDBC)
• Invesco Nasdaq 100 or L&G Global Technology Index funds

Index funds

If you want to invest in index funds, you can do so through your brokerage account. Your brokerage must offer both mutual funds and ETFs. If you have an online brokerage account, look at their stock or fund screening tools. You should be able to put in variables concerning the index funds that spark your interest and come away with a list of options.

For example, you may want to invest in a total market fund that has a low expense ratio and is passively managed. Maybe you want a lower initial investment. You may have ideas about which company stocks you would like to see within the index fund or ETF you choose.

If you want to compare two such funds, you can look at the Wilshire 5000 Index Investment Fund, which is a mutual fund that holds around 3,500 U.S.-based stocks weighted by market capitalization. It has a $1,000 initial investment and an expense ratio of 0.63%. Its one-year return, as of April 2021, was 48.88%. About 25% of the fund is composed of technology company stock.

Another total market fund is the Vanguard Total Stock Market Index Admiral Shares fund. Although a much larger fund than the Wilshire 5000, it is also heavily weighted in favour of technology company stocks. It has a $3,000 initial investment and a very low expense ratio of 0.04%. Its one-year return was 51.05%.

If the initial investment is your primary concern, you might choose the Wilshire 5000 fund. However, if the expense ratio is more important to you, you would want to choose the Vanguard fund. As you compare more and more funds, you will find many variables that you should consider to choose a fund or ETF to meet your own risk tolerance, time horizon, and investment goals.

If you are investing in the Nasdaq, a popular and effective way to do so is via an ETF or an index tracker fund. These are 'passive' investments that use computer algorithms to replicate a particular index. For example, the Invesco EQQQ Nasdaq 100 UCITS ETF charges 0.3% and fully replicates the Nasdaq 100 Index.

Another option is the iShares Nasdaq 100 ETF, which offers targeted exposure to 100 of the largest non-financial companies listed on the Nasdaq. Or you could try the L&G Global Technology Index fund, which is an index fund designed to track the performance of the FTSE World Technology Index. This fund has a top 10 of holdings that include Apple, Microsoft, Alphabet (Google's parent company), and the tech company Nvidia.

Mutual funds

There are several mutual funds that track the Nasdaq-100 index, offering investors a simple way to gain exposure to the index's performance. These funds are known as index funds and are designed to invest in all the components of the Nasdaq-100 index, in the same weights as the index. This means that over time, these funds will deliver almost identical performance as the index they track, minus fees.

For example, the Fidelity Nasdaq Composite Index Fund (FNCMX) is a mutual fund that tracks the Nasdaq Composite Index. It has a low net expense ratio of 0.30% and no minimum investment. This means that investors can gain exposure to the index without having to purchase individual stocks or worry about weighting their portfolio correctly.

Another option is the Invesco Nasdaq 100 ETF (QQQM), which is a lower-cost version of the Invesco QQQ Trust (QQQ). Both funds track the Nasdaq-100, but the QQQM has lower fees, a smaller share price, and reinvests dividends, making it appealing to buy-and-hold investors. The QQQ, on the other hand, is preferred for short-term trading due to its high liquidity and larger size.

The Invesco Nasdaq 100 Index Fund (IVNQX) is another mutual fund that allows investors to track the Nasdaq-100 Index. This fund was created to reach a broader audience, specifically retirement accounts that often can't access ETFs.

Overall, mutual funds that track the Nasdaq-100 index offer a simple, low-risk way to gain exposure to the index's performance. These funds are designed to provide diversification and long-term growth, making them a good option for investors who want to invest in the Nasdaq without the hassle of picking individual stocks.

Futures

The Nasdaq-100® futures, for example, can be a great hedge against swings in tech earnings, offering multiple kinds of protection. The E-mini Nasdaq-100 futures (NQ) are another option, providing liquid benchmark contracts to manage exposure to the 100 leading non-financial US large-cap companies that make up the Nasdaq-100. These futures contracts are also a cost-effective way to gain market exposure to the Nasdaq-100 Index, which tracks 100 large-cap companies spanning major industry groups.

Compared to options, futures have higher liquidity and are often used for similar purposes of hedging or speculation. Options are riskier contracts that are also more suited to sophisticated investors, providing the opportunity to buy or sell a security at a specific date and price.

When investing in futures, it is important to consider your risk tolerance and investment goals. As a more sophisticated investment product, futures may not be suitable for all investors. It is always recommended to seek advice from a securities professional before making any investment decisions.

Options

Nasdaq-100® Index Options products are based on the Nasdaq-100® Index (NDX), which is a modified market-capitalization-weighted index composed of securities issued by 100 of the largest non-financial companies listed on the Nasdaq Stock Market.

There are several strategies you can employ when investing in options, including:

• Buying Call Options: This strategy is used by investors looking to profit from an expected rise in the level of the NASDAQ-100 Index over the term of the options contract or to hedge a short market position.
• Buying Long Put Options: This strategy is used by investors looking to profit from an expected decline in the level of the NASDAQ-100 Index over the term of the options contract or to hedge a long market position.
• Long Straddle: This strategy involves buying one Call Option and one Put Option with identical strikes and expirations. It is used by investors who want to participate in an expected sharp or prolonged move in either direction of the NASDAQ-100 Index.
• Long Strangle: This strategy involves buying one Call Option and one Put Option with identical expirations but different strikes. It is used by investors who want to participate in an expected sharp or prolonged move in either direction in the price of the NASDAQ-100 Index.
• Bull Call Spread: This strategy involves buying one Call Option and selling one Call Option with a higher strike price. It gives investors the chance to participate in the rise of the NASDAQ-100 Index but only up to the point where the short call caps additional gains.
• Bull Put Spread: This strategy involves selling one Put Option and buying one Put Option with a lower strike price. It gives investors the chance to participate in the rise or stability of the NASDAQ-100 Index and is limited in profit to the credit received.
• Bear Call Spread: This strategy involves selling one Call Option and buying one Call Option with a higher strike price. It gives investors the chance to participate in the stability or decline of the NASDAQ-100 Index and is limited in profit to the credit received.
• Bear Put Spread: This strategy involves buying one NDX Put Option and selling one Put Option with a lower strike price. It gives investors the chance to participate in the decline of the NASDAQ-100 Index but only up to the point where the short put caps additional gains.
• Protective Collar: This strategy involves buying one Put Option and selling one Call Option with a lower strike to help fund the cost of the put. It gives investors the chance to participate in the decline of the NASDAQ-100 Index but only up to the point where the short call caps additional gains.
• Short Iron Condor: This strategy involves selling one call, buying another call with a higher strike, selling one put, and buying another put with a lower strike. It gives investors the chance to participate as the NASDAQ-100 Index stays within a narrow range and is limited in profit to the credit received.
• Short Call Butterfly: This strategy involves buying two Call Options with a middle strike and selling one Call Option each at a lower and upper strike. It gives investors the chance to participate as the NASDAQ-100 Index rises or declines towards the expiration date and attempts to minimize the net debited price.
• Short Iron Butterfly: This strategy involves buying a call at an upper strike, selling a call and a put at a middle strike, and buying a put at a lower strike. It gives investors the chance to participate as the NASDAQ-100 Index stays within a narrow range and is limited in profit to the credit received.

Before investing in options, it is important to understand the risks involved and to consult with a securities professional.

Frequently asked questions