If you’re an investor with a keen interest in technology, it’s only natural to take a look at exchange-traded funds that track the Nasdaq. The technology sector is historically volatile compared to the NYSE, and Nasdaq stocks exhibit about 35% more volatility. (See also: Index Investing: The Nasdaq Composite Index.)
But volatility can also mean high growth potential and the accompanying financial reward. In 2016, the Nasdaq composite has veered from returns of -14.45% in February to current year-to-date returns of 8.7%. It's not for the faint of heart.
ETFs tracking the Nasdaq composite offer investors exposure to the high-risk, high-reward technology sector while still hedging their bets with a more balanced approach. So if you’d rather not fiddle with individual stocks but still want the thrills of a tech-focused addition to your portfolio, take a look at these five Nasdaq-based ETFs. (See also: The Main Attractions of ETF Investing.)
All year-to-date figures represent the period of January 1, 2017 through March 15, 2017. Funds were selected based on a combination of performance and assets under management.
All figures were accurate as of March 16, 2017.
PowerShares QQQ ETF (QQQ)
- Issuer: Invesco
- Assets Under Management: $46.42 billion
- YTD Performance: 10.81%
- Expense Ratio: 0.20%
Fondly known as “the Qubes” on the Street, Invesco’s QQQ trust is one of the oldest and most widely traded ETFs in the world. The fund tracks the Nasdaq 100, which is comprised of the largest global non-financial companies listed on the market. Moreover, its internal rules skew it even more towards the technology sector, adding to its volatility. The information technology sector, for example, currently accounts for nearly 60% of the fund’s portfolio. The fund is weighted heavily toward large-cap growth companies (over 50%).
Despite its potential drawbacks, QQQ is an extremely inexpensive fund compared to its peers. Its one-year, three-year, and five-year returns are 24.46%, 15.23%, and 16.01% respectively.
Fidelity Nasdaq Composite Index ETF (ONEQ)
- Issuer: Fidelity
- Assets Under Management: $995 million
- YTD Performance: 9.10%
- Expense Ratio: 0.31%
Since its inception in 2003, this Fidelity ETF has attempted to replicate the Nasdaq composite. At least 80% of its holdings are common stock included in the index. More than 92% of the assets represent domestic companies.
The fund is weighted toward the information technology, health care and consumer discretionary sectors, and you’ll see lots of familiar names: Apple Inc. (AAPL), Amazon.com Inc. (AMZN) and Microsoft Corp. (MSFT) are the top three holdings.
iShares Nasdaq Biotechnology ETF (IBB)
- Issuer: BlackRock
- Assets Under Management: $8.31 billion
- YTD Performance: 12.29%
- Expense Ratio: 0.47%
Pharmaceuticals and biotech are extremely volatile sectors on an already capricious exchange, but where there is risk, there is also potential for tremendous reward. If you want exposure to these forward-thinking companies, the iShare Biotech ETF is one of the most efficient and diverse funds available.
Top holdings include Celgene Corp. (CELG), Gilead Sciences Inc. (GILD) and Biogen Inc. (BIIB); the top 10 holdings account for roughly 60% of the fund’s portfolio. One-year, three-year, and five-year annualized returns are 14.20%, 5.63%, and 20.22%.
First Trust Nasdaq 100 Tech Sector ETF (QTEC)
- Issuer: First Trust
- Assets Under Management: $1.88 billion
- YTD Performance: 13.14%
- Expense Ratio: 0.40%
This fund tracks the technology companies in the Nasdaq 100, with 90% of its assets in these companies. Top industries are semiconductors, software and the Internet, which account for over 80% of the fund’s portfolio. The top 10 holdings make up roughly 35% of the portfolio, with Nvidia Corp. (NVDA) and Akamai Technologies Inc. (AKAM) taking the top two spots.
QTEC has a solid performance history, achieving one-year, three-year and five-year annualized returns of 44.47%, 18.88%, and 17.49% respectively.