Ryan O’Leary is a writer and former financial services professional. He writes about personal finance for Wealthsimple and his work has been featured by the New York Stock Exchange. Ryan holds a Bachelor's degree in International Business from University College Cork in Ireland.
There are plenty of compelling Nasdaq exchange traded funds (ETFs) out there, including some appropriate for investors seeking robust technology sector exposure. Here are some Nasdaq ETFs to consider.
ETFs that Track the Nasdaq Index
Exchange traded funds, or ETFs, are a popular option for investors looking to grow their money with both short- and long-term time horizons in mind. ETFs allow you to buy and sell funds like a stock on a popular stock exchange. This is different from traditional mutual funds, which only allow you to trade at the end of a business day.
The ETF combination of instant diversification and quick liquidity is a good reason to consider them as a first investment or part of a veteran portfolio.
ETFs trade nearly instantly when you enter a trade online with your preferred brokerage. Many ETFs track major indices like the S&P 500 or the Dow Jones Industrial Average, but ETFs can focus on almost anything that a traditional mutual fund can.
Like all investments, ETFs come with risks. Typically, riskier investments lead to higher returns. ETFs tend to follow that pattern. Diverse, broad market funds and funds focused in bonds tend to offer the lowest risk. Commodity, option, and narrower funds usually bring you more risk and volatility.
Your investment decisions should align with your financial goals. Be aware of your own risk tolerance, if you can afford to lose some or all of your investment, and how your investment choices fit in with your overall financial plan.
When you buy an ETF, you are not buying shares of a company’s stock or bonds directly. Instead, you are putting money into a fund that buys a basket of stocks and bonds on your behalf. Make sure the fund you buy invests in assets you would choose yourself.
Finally, keep an eye on the fees. In August 2018, Fidelity released two new ETFs that are 100% fee-free. These ETFs are a very “new concept.” Prior to that, competitive ETFs from companies like Vanguard, Fidelity, and Schwab led the competition with fees sometimes under 0.1%. Compare multiple ETFs for fees and other features before you buy.
Nasdaq is known as one of the world’s largest operators of equity exchanges, but the company has been a force in the indexing world dating back to the early 1970s.
“Nasdaq calculates more than 40,000 diverse indexes, providing coverage across asset classes, countries and sectors,” according to the company.
Nasdaq indices (Nasdaq 100 Index and the Nasdaq Composite Index) track stocks traded on the Nasdaq exchange. Contrary to what many traders and investors believe, these indices do not only include technology sector stocks. The indices also include stocks in consumer goods, health care, and financials, just to name a few. However, tech stocks primarily dominate the index, which could explain the common misnomer.
Typically, the indices tends to be more volatile than the S&P 500 Index and the Dow Jones Industrial Average. However, as previously mentioned, high risk means that there is a higher potential reward.
If you’re interested in gaining exposure to an index predominantly focused on tech stocks, here are some exchange traded funds (ETFs) tracking the Nasdaq indices.
PowerShares QQQ (QQQ)
Expense ratio: 0.20% per year, or $20 on a $10,000 investment.
Known as “the Qubes”, Invesco’s PowerShares QQQ (NASDAQ:QQQ) is one of the largest and oldest ETFs tracking the Nasdaq 100 Index.
The PowerShares QQQ will generally hold all stocks included in the index, the fund’s underlying index. The index includes 100 of the largest domestic, as well as international, non-financial companies listed on the exchange, based on market capitalization. This typically includes many tech companies.
The PowerShares QQQ has total net assets of over $70 billion under management, making it one of the largest ETFs in the world. Additionally, it’s a very liquid ETF, with over 36 million shares traded a day, on average. The PowerShares QQQ is a relatively cheap ETF too, charging a total expense ratio of just 0.20% per year.
Where the S&P 500 tracks large-cap stocks across both major US stock exchanges, this index is limited to just the NASDAQ, so you can expect your investment to be more heavily influenced by big news in the technology sector more than other industries.
First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW)
Expense ratio: 0.60% per year, or $60 on a $10,000 investment.
The First Trust NASDAQ-100 Equal Weighted Index Fund (NASDAQ:QQEW) is another ETF that provides exposure to the Nasdaq 100 Index. However, unlike QQQ, QQEW aims to replicate the general price and yield of the Nasdaq 100 Equal Weighted Index.
Each of the securities in the index is given a weight of 1% of the index. Moreover, the index is rebalanced quarterly. Bearing that in mind, smaller companies’ performances also contribute as much as large-cap companies within the index. Therefore, one company’s performance should not dominate QQEW’s performance.
The ETF charges an annual net expense ratio of 0.60%, which is more expensive than QQQ. Additionally, QQEW is fairly illiquid, relative to the QQQ, only trading 80K per day on average.
Invesco DWA NASDAQ Momentum ETF (DWAQ)
Expense ratio: 0.60% per year, or $60 on a $10,000 investment.
The Invesco DWA NASDAQ Momentum ETF (NASDAQ:DWAQ) is a Nasdaq ETF that can be used as an alternative or complement to the aforementioned QQQ. DWAQ’s underlying benchmark is the Dorsey Wright NASDAQ Technical Leaders Index.
“The Index is comprised of approximately 100 securities from an eligible universe of approximately 1,000 securities of large capitalization companies from the NASDAQ US Benchmark Index. All securities in the universe are ranked using a proprietary relative strength (momentum) measure,” according to Invesco.
DWAQ is a worthwhile idea for investors looking for growth exposure; more than 80% of the fund’s holdings are large-, mid- and small-cap growth stocks. Additionally, this ETF is worth considering for investors looking to overweight technology stocks as DWAQ allocates more than 30% of its roster to that sector.
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First Trust Nasdaq Artificial Intelligence and Robotics ETF (ROBT)
Expense ratio: 0.65% per year, or $65 on a $10,000 investment.
The First Trust Nasdaq Artificial Intelligence and Robotics ETF (NASDAQ:ROBT) is a prime example of a thematic ETF. ROBT targets the Nasdaq CTA Artificial Intelligence and Robotics Index. It faces plenty of competition, but ROBT is a tantalizing avenue to robotics investing.
ROBT features exposure to three segments of the artificial intelligence and robotics universe—companies the issuer deems to be enablers, engagers and enhancers. Engagers command 60% of ROBT’s index while enablers garner 25% and enhancers get 15%.
Big growth is expected for the themes represented in ROBT. Global robotics and drone spending could swell to almost $202 billion by 2022 according to IDC, while artificial intelligence could command $15.7 trillion of the global economy by 2030.
ProShares Equities for Rising Rates ETF (EQRR)
Expense ratio: 0.35% per year, or $35 on a $10,000 investment.
The ProShares Equities for Rising Rates ETF (NASDAQ:EQRR) is a sensible option for investors looking for a Nasdaq ETF with reduced tech exposure.
EQRR tracks the Nasdaq U.S. Large Cap Equities for Rising Rates Index. The aim of this Nasdaq ETF is to provide exposure to “sectors that have had the highest correlations to 10-Year U.S. Treasury yields and within those sectors, the stocks that have had a strong tendency to outperform as rates rise,” according to ProShares.
The fund devotes over 36% of its combined weight to the financial services and industrial sectors, indicating that it can mitigate some of the volatility associated with other growth-heavy Nasdaq high dividend ETFs.
Fidelity Nasdaq Composite Index Tracking Stock ETF (ONEQ)
Expense ratio: 0.20% per year, or $20 on a $10,000 investment.
The Fidelity Nasdaq Composite Index Tracking Stock ETF (NASDAQ:ONEQ) aims to provide investment results corresponding to the general price and yield performance of the Nasdaq Composite Index.
The ETF invests a substantial amount, generally at least 80%, of its assets in common stocks included in the index.
ONEQ uses statistical sampling techniques in order to take into account different factors to structure a portfolio of securities listed in its underlying index.
There are ETFs you could pick to trade if you want exposure to the NASDAQ 100 or NASDAQ Composite Index. When you’re selecting an ETF you trade, you need to make sure it’s liquid enough for you to get out, and the fees are not too expensive.
Note that to understand how an ETF really works, it’s best to read the prospectus.
If all this talk about ETFs has you eager to get started investing, now might be a good time to join Wealthsimple. We offer state-of-the-art technology, low fees and the kind of personalized, friendly service you might not have thought possible from an automated investing service. Get started investing in a matter of minutes.
Last Updated April 25, 2022
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