TipRanks has identified four leading Nasdaq 100 (NDX) ETFs for investors to consider while making investments. Read on to figure out which is the best for you to buy.
The Nasdaq 100 index (NDX) consists of 100 of the largest non-financial companies listed on the Nasdaq Stock Exchange (NASDAQ:NDAQ) based on market capitalization. Technology companies form a major portion of the index and so, the NDX is often referred to as a tech-heavy index. Traders watch the performance of this index to gauge the overall performance of the technology sector.
An Exchange-Traded Fund (ETF) is a financial instrument that tracks indices or a unique set of stocks in different sectors. ETFs are categorized based on various parameters, including the index they track, industry focus, commodity ETFs, currency ETFs, and so on.
An ETF tracking the Nasdaq 100 index is called an NDX ETF. It falls under the passive investing style and will generate returns that are almost similar to the index’s returns.
Given that most of the companies in NDX are from the technology sector, stocks of American giants namely Apple (NASDAQ:AAPL), Microsoft Corp. (NASDAQ:MSFT), Amazon.com (NASDAQ:AMZN), Alphabet Class A (NASDAQ:GOOGL), and Tesla (NASDAQ:TSLA) comprise the top holdings of all NDX ETFs.
Here are the four leading NDX ETFs for investors to consider while making investments:
- Invesco QQQ Trust (QQQ)
- Invesco NASDAQ 100 ETF (QQQM)
- ProShares UltraPro QQQ (TQQQ) (3x leveraged)
- ProShares UltraPro Short QQQ (SQQQ) ((-3x) inverse exposure)
All these ETFs have one thing in common, which is tracking the NDX. However, these ETFs have different Expense Ratios, Returns, and Yields that can form the basis for an investment decision. We’ve examined each of the ETFs in detail and defined their differences.
Invesco QQQ Trust (QQQ)
The Invesco QQQ Trust ETF was launched by Invesco Ltd. (NYSE:IVZ). It has 101 holdings of companies belonging to the “transformative, long-term themes such as Augmented Reality, Cloud Computing, Big Data, Mobile Payments, Streaming Services, Electric Vehicles, and more.”
The QQQ ETF was launched on March 10, 1999, and trades under the ticker symbol QQQ on the Nasdaq stock exchange. As of February 15, 2023, the fund has $164.58 billion of assets under management (AUM) and is by far the largest NDX ETF to date. The net asset value (NAV) of the fund as of date is $309.21.
Notably, the QQQ ETF’s top three sectoral allocations are as follows: Information Technology (50.51%), Communication Services (16.09%), and Consumer Discretionary (15.91%).
QQQ has an expense ratio of 0.20%, and its 30-day average trading volume is 52.09 million, making it one of the most-traded NDX ETFs. Year-to-date, the Invesco QQQ NAV has returned 10.65% vis-à-vis 10.67% returned by the Nasdaq 100 index.
Invesco NASDAQ 100 ETF (QQQM)
The Invesco NASDAQ 100 ETF was launched on October 13, 2020, with the aim “to invest at least 90% of its total assets in the securities that comprise the Index.” The fund trades under the ticker symbol QQQM on the Nasdaq exchange.
Currently, the QQQM ETF has 103 holdings with sectoral allocations almost similar to that of the QQQ ETF. As of February 13, 2023, the fund’s AUM stands at $7.23 billion and its NAV is $127.21. Remarkably, QQQM ETF has an expense ratio of 0.15%, meaningfully lower than that of QQQ. On the other hand, its 30-day average trading volume is 1.06 million, which is significantly lower than that of QQQ.
Year-to-date, the Invesco QQQM NAV has returned 10.66% vis-à-vis 10.67% returned by the Nasdaq 100 index.
ProShares UltraPro QQQ (TQQQ)
The ProShares UltraPro QQQ ETF is a leveraged ETF, launched with the objective of earning 3 times the daily returns of the Nasdaq 100 index. This means that the fund’s daily return can be thrice that of the NDX but may not necessarily be 3x for periods of more than a day. Importantly, this also means that both positive and negative returns from the fund will be thrice those of the NDX.
In simple terms, a 1% gain/fall in NDX will lead to a 3% gain/fall in the TQQQ fund, making it a highly speculative investment. The TQQQ fund also invests in swaps, futures, and bonds to meet its investment objective.
The fund trades under the ticker symbol TQQQ on the Nasdaq exchange. TQQQ was launched on February 9, 2010, with almost similar sectoral allocations of the other two above-mentioned funds.
As of February 13, 2023, TQQQ has an AUM of $12.98 billion and its NAV is $24.96. Notably, TQQQ has a relatively high expense ratio of 0.86% and it also boasts one of the highest 30-day average trading volumes of roughly 193 million. This is mainly because of the very objective with which the fund was formed, to return thrice the index’s returns. Investors often buy or sell intra-day to smooth out their gains/losses through the day.
Year-to-date, the TQQQ NAV has generated an impressive 50.64% return.
ProShares UltraPro Short QQQ (SQQQ)
The ProShares UltraPro Short QQQ is an inverse-leveraged ETF that aims to earn returns opposite those earned by the Nasdaq 100, but three times in magnitude. In simple terms, on a particular day, if the NDX earns 1%, the ProShares UltraPro Short QQQ ETF will earn -3% returns and vice versa. This ETF is often used as a hedging tool to bet against an expected market decline.
Since the NDX is heavily tech-laden, the ProShares UltraPro Short QQQ essentially bets against the tech sector, hoping for the sector to underperform. Investors must be aware that this ETF cannot be considered a long-term play.
This ETF was launched on February 9, 2010, and trades under the ticker symbol SQQQ on the Nasdaq exchange. Year to date, the SQQQ NAV has generated negative returns of 37.8%, considering the overall markets have remained highly bullish so far.
And not surprisingly, SQQQ has an expense ratio of 0.95%, the highest amongst the four ETFs mentioned, as the fund managers actively pursue attaining the daily returns stated in the investment objective.
Currently, the fund has $4.89 billion of AUM and trades at a NAV of $33.55. Further, its 30-day average trading volume is 130.86 million, even higher than that of the TQQQ ETF.
Key Takeaways
Investing in NDX-tracking ETFs like the ones mentioned above enables you to get much-needed diversification coupled with other benefits including lower costs, higher liquidity, flexibility, transparency, and tax efficiency. Investors can choose any of the leading NDX ETFs to realize the best returns on their investments. Having said that, factors such as a fund’s expense ratio, trading volume, and returns should be compared before making an investment decision. Also, investors with a lower risk appetite should steer clear of the leveraged and inverse-leveraged ETFs.
Investors can use the TipRanks ETF page to research and study their performances and make informed investment choices.
