4 ETFs to Play the Nasdaq for Solid Returns


Finally, 15 years later — the Nasdaq index is back to the 5,000 point. However, things are much different this time around.

NasdaqOMX185Keep in mind that during 2000s the price-to-earnings ratio of the Nasdaq was at a nose-bleed 120X, which was driven by the dot-com mania. As of now, the multiple is a much more sober 23X.

Another big difference is that the initial public offering market has changed in a big way. No longer can a company come public with massive losses and a dicey business model. Then again, the crash of the Nasdaq — which fell to a low 1,108.49 in 2002 — had a lasting impact on investors and also led to significant regulatory changes.

Despite all this, the Nasdaq remains a good way to get exposure to growth companies, which can provide nice long-term returns. Consider that the Nasdaq has gained about 142% during the past decade.

So, how can you play the Nasdaq? Let’s take a look at some options:

Fidelity Nasdaq Comp. Index Tracking Stock (ONEQ)

Fidelity mutual fundsThe Fidelity Nasdaq Comp. Index Tracking Stock (NASDAQ:ONEQ) is an exchange-traded fund that closely tracks the performance of the Nasdaq. The expense ratio is 0.21%, and the dividend yield is a minimal 0.88%.

For the most part, the index skews towards larger companies. Keep in mind that 65.37% of the portfolio is made up of large caps whereas only 15.28% is composed of small caps.

The ONEQ has a heavy emphasis on information technology operators, which come to roughly 47% of the portfolio, but there are still sizable holdings in categories like consumer discretionary (17.46%), health care (16.77), financials (6.05%), consumer staples (4.94%) and industrials (4.44%). Something else: about 93.22% of the holdings are U.S. companies.

In light of all this, it should be no surprise that the top stocks in the ONEQ include large tech firms. They include names like Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL), Amazon.com, Inc. (NASDAQ:AMZN) and Facebook Inc (NASDAQ:FB).

In terms of the returns, ONEQ has a good track record. During the past five years, the ETF has posted a compound annual gain of 18.22%.

PowerShares QQQ Trust, Series 1 (QQQ)

Invesco PowersharesThe PowerShares QQQ Trust, Series 1 (NASDAQ:QQQ) ETF tracks the Nasdaq-100 Index, which is made up of the 100 largest non-financial companies listed on the Nasdaq. The ETF has an expense ratio of 0.2% and assets under management of $39.9 billion.

The average market cap of the portfolio is a hefty $198.3 billion. Oh, and Apple Inc. (NASDAQ:AAPL) represents nearly 15% of the entire portfolio and Microsoft Corporation (NASDAQ:MSFT) accounts for about 7%.

So, if you already have these stocks in your portfolio, then the QQQ may not necessarily be a good option.

Interestingly enough, the QQQ has generally performed better than the broader ONEQ. For the past five years, the annual compounded gain on the QQQ was 20.47%.

Then again, the heavier emphasis of companies like Apple and Facebook Inc (NASDAQ:FB) likely added a little extra oomph.

First Trust Nasdaq-100 Equal Weighted ETF (QQEW)

FirstTrust185Now, suppose you want to focus on larger companies but do not want the portfolio to be too focused on companies with mega capitalizations like Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT)?

To do this, you can check out the First Trust Nasdaq-100 Equal Weighted ETF (NASDAQ:QQEW), whose portfolio is not adjusted for the market cap of each stock.

This means you get roughly 1% holdings of each of the 100 stocks in the index.  In other words, if AAPL takes a fall, the impact will not be as bad for the QQEW ETF as it would for the ONEQ ETF.

Yet, the expense ratio for QQEW is a bit rich at 0.6%. Although, during the past five years, the QQEW fund has been able to post a compound annual gain of 18.41%.

ProShares Short QQQ (PSQ)

ProShares185If you are bearish on the Nasdaq, then there are a variety of inverse ETFs available. Inverse ETFs essentially increase a 1% for every 1% drop in the index.

One option to consider is the ProShares Short QQQ (NYSEARCA:PSQ), which has $220 million in assets and an expense ratio of 0.95% (inverse funds generally have heavy costs because of the complexities of investing in futures).

Of course, PSQ has had a terrible track record because of the long bull run in the Nasdaq. During the past five years, the compound annual return was -20.34%.

But when markets get volatile, the PSQ fund can be a big-time money maker.

After all, during the 2008 financial crisis, the PSQ fund gained 46.54%.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.

Article printed from InvestorPlace Media, https://investorplace.com/2015/03/nasdaq-etf-etfs-apple-aapl-microsoft-msft-oneq-qqq-qqew-psq/.

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