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.

Key Takeaways

  • The Nasdaq 100 is an index of 100 of the largest non-financial companies listed on the Nasdaq stock exchange.
  • The Nasdaq 100 has dramatically outperformed the broader market in the past year.
  • The only ETF meaningfully 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 index has significantly outperformed the broader market over the last year. As of February 10, 2021, the Nasdaq 100 provided a total return of 44.7% over the past 12 months, well above the S&P 500's total return of 18.9%.

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 larger size and greater liquidity makes the ETF a relatively cheaper option for many big institutional investors and high-speed trading firms. Because QQQM is still so new and lacks historical performance data, we don't include it in our analysis below.

Invesco QQQ (QQQ)

  • Performance over 1-Year: 44.5%
  • Expense Ratio: 0.20%
  • Annual Dividend Yield: 0.52%
  • 3-Month Average Daily Volume: 29,276,338
  • Assets Under Management: $155.7 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 100 non-financial companies and is heavily weighted to just a handful. 48.7% of its holdings belong to the information technology sector, followed by an 18.9% allocation in consumer discretionary and 18.6% in communication services stocks. We look in more detail at the fund's top 10 holdings below.

Top QQQ Holdings
Company Name (Ticker) Percent of QQQ Assets Description of Company
Apple Inc. ( AAPL) 11.8% Computer and software
Microsoft Corp. ( MSFT) 9.4% Computer and software
Amazon.com Inc. ( AMZN) 8.5% E-commerce, cloud computing
Tesla Inc. ( TSLA) 4.8% Electric vehicles
Alphabet Inc. ( GOOG) (class C shares) 3.5% Software, search engine, and cloud computing
Facebook Inc. ( FB) (class A shares) 3.4% Social media
Alphabet Inc. ( GOOGL) (class A shares) 3.2% Software, search engine, and cloud computing
NVIDIA Corp. ( NVDA) 2.9% Computing and chips
PayPal Holdings Inc. ( PYPL) 2.6% Online payments
Netflix Inc. ( NFLX) 1.9% Video streaming

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