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, 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 tracks a subset of the 103 largest non-financial companies listed on the Nasdaq Composite, weighted according to a modified market capitalization strategy. The index is comprised of a broad range of companies including not only the world's biggest tech stocks, but also retail, biotechnology, industrial, and health care stocks. Companies in the Nasdaq 100 include the biopharmaceutical firm, Gilead Sciences Inc. (GILD); the food and beverage company, Mondelez International Inc. (MDLZ); and other prominent names. Investors seeking to diversify their holdings and mitigate risk may look to ETFs focused on the Nasdaq 100.

The Nasdaq 100 has significantly outperformed the broader market in the last year. As of August 13, 2020, the Nasdaq 100 had 1-year trailing total returns of 49.2% as compared with 19.4% for the S&P 500.

Key Takeaways

  • The Nasdaq 100 is an index of 103 of the largest non-financial companies in the Nasdaq Composite, weighted according to a modified market capitalization strategy.
  • The only ETF targeting the Nasdaq 100 is QQQ.
  • The top three holdings of QQQ are Apple Inc., Microsoft Corp, and Amazon.com Inc., respectively.
  • The Nasdaq 100 has dramatically outperformed the broader market in the past year.

As it turns out, there is just a single ETF which targets the Nasdaq 100, excluding inverse and leveraged funds as well as those with under $50 million in assets under management: the Invesco QQQ fund (QQQ). All figures aside from the performance data above are as of August 15, 2020.

Invesco QQQ Trust (QQQ)

Because index-tracking ETFs will follow the performance of the index, one of, if not the biggest determinant of long-term returns is how much it charges in fees. Liquidity indicates how easy it will be to trade an ETF, with higher liquidity generally translating to lower trading costs. Trading costs are not a big concern to people who want to hold ETFs long term, but if you’re interested in trading ETFs frequently, then it’s important to look for high-liquidity funds to minimize trading costs.

  • 1-Year Total Returns: 50.3%
  • Expense Ratio: 0.20%
  • Annual Dividend Yield: 0.60%
  • 3-Month Average Daily Volume: 40,984,088
  • Assets Under Management: $130.0 billion
  • Inception Date: March 10, 1999
  • Issuer: Invesco
Top QQQ Holdings
Company Name (Ticker) Percent of QQQ Assets Description of Company
Apple Inc. (AAPL) 13.8% Computer and software
Microsoft Corp. (MSFT) 11.0% Computer and software
Amazon.com Inc. (AMZN) 10.9% E-commerce, cloud computing
Facebook Inc. (FB) 4.4% Social media
Alphabet Inc. (GOOGL) 3.6% Technology (Class A shares)
Alphabet Inc. (GOOG) 3.5% Technology (Class C shares)
Tesla Inc. (TSLA) 2.7% Electric vehicles
NVIDIA Corp. (NVDA) 2.5% Computing and chips
PayPal Holdings Inc. (PYPL) 2.0% Online payments
Adobe Inc. (ADBE) 1.9% Computer software