Best (and Only) Nasdaq ETF for Q3 2021


Investors who want to own stocks in the technology sector may decide to buy exchange traded funds (ETFs) that track the Nasdaq. When investors refer to the Nasdaq, they typically refer to the tech-heavy Nasdaq Composite Index, which is comprised of more than 2,500 companies. Companies in this group vary widely in size and quality, including struggling players and dominant, established companies.

The Nasdaq 100 index is another way for investors to effectively track the broader Nasdaq Composite. The Nasdaq 100 tracks the 100 largest non-financial companies listed on the Nasdaq stock exchange, weighted according to a modified market capitalization strategy. The index is comprised of a broad range of companies including the world’s biggest tech stocks, and also retail, biotechnology, industrial, and healthcare stocks. The Nasdaq 100 also includes companies such as video game maker Activision Blizzard Inc. (ATVI) and soft drink maker PepsiCo Inc. (PEP). Investors seeking to diversify their holdings and mitigate risk may consider ETFs focused on the Nasdaq 100.

The Nasdaq 100 index has slightly outperformed the broader market over the last year. As of May 6, 2021, the Nasdaq 100 provided a total return of 52.7% over the past 12 months, above the S&P 500’s total return of 50.0%.

There is only one ETF trading in the U.S. that meaningfully targets the Nasdaq 100, the Invesco QQQ (QQQ). Invesco launched a slightly cheaper version of QQQ in October 2020 called the Invesco NASDAQ 100 ETF (QQQM). This newer “Q-mini” fund is almost identical to QQQ, except that it has lower fees, a smaller share price, and reinvested dividends, all of which may be appealing to buy-and-hold savers. But the traditional QQQ’s combination of larger size and greater liquidity makes the ETF a relatively cheaper option for many big institutional investors and high-speed trading firms. We don’t include QQQM in our analysis below because it’s still so new and lacks historical performance data, and because it should have the same holdings as QQQ,

  • Performance over 1-Year: 48.1%
  • Expense Ratio: 0.20%
  • Annual Dividend Yield: 0.55%
  • 3-Month Average Daily Volume: 55,311,928
  • Assets Under Management: $155.5 billion
  • Inception Date: March 10, 1999
  • Issuer: Invesco

QQQ has become one of the most popular ETFs. The sheer magnitude of its daily trading volume suggests that it is widely preferred as a vehicle for short-term trading as opposed to long-term investing. Its high liquidity makes frequent trading relatively cheap. But that doesn’t exclude it from being useful for tactical exposure to the technology sector within a buy-and-hold strategy. The fund has one of the lowest expense ratios in the industry, making annual fees for the long-term investor relatively inexpensive. QQQ is also not the most diversified ETF given that it owns only non-financial companies and is heavily weighted to just a handful. Nearly 48% of its holdings belong to the information technology sector, followed by a 20.1% allocation in communication services and 17.5% in consumer discretionary stocks. We look in more detail at the fund’s top 10 holdings below.

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Top QQQ Holdings
Company Name (Ticker) Percent of QQQ Assets Description of Company
Apple Inc. (AAPL) 11.2% Computers, software, services
Microsoft Corp. (MSFT) 9.8% Computers, cloud services, software Inc. (AMZN) 8.5% E-commerce, cloud computing
Alphabet Inc. (GOOG) (class C shares) 4.0% Search engine, software and cloud computing
Facebook Inc. (FB) (class A shares) 3.9% Social media
Tesla Inc. (TSLA) 3.6% Electric vehicles
Alphabet Inc. (GOOGL) (class A shares) 3.6% Software, search engine, and cloud computing
NVIDIA Corp. (NVDA) 2.8% Computing and chips
PayPal Holdings Inc. (PYPL) 2.3% Online payments
Comcast Corp. (CMCSA) (class A shares) 2.1% Telecommunications, Media

The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described on our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.

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