ETF Chart of the Day: Nasdaq-100 Index

ETF Trends

Equities gapped lower yesterday and finished deeply in the red for the session, and we noticed a pick-up in volume in various products as well. We have spent some time in 2012 speaking about Technology, specifically PowerShares QQQ Trust (NasdaqGM: QQQ) which is heavily exposed to the tech sector, and the evident out-performance that the sector has displayed this year in comparison to the broad based S&P 500 Index.

QQQ year to date is up 13.85% versus the S&P 500 Index up 7.30%. This out-performance has largely been paced by Apple (NasdaqGS: AAPL - News) as well, as the equity is up an impressive 30.92% year to date and currently has about a 15% weighting in the Nasdaq 100. [Tech ETFs to Consider as Apple Breaks $500]

However, this relative outperformance has not necessarily existed over the past few sessions, as Techs, including AAPL, have basically been down in-line with the broader market. This potential “loss of leadership” could be cause for alarm in regards to the sustainability of a continued rally.

Our market technician David Chojnacki points out that near term technical support in the NDX (Nasdaq 100 Index) is 2582, and after a brief dip below this level yesterday, the index managed to finish higher at 2588 to close the session, largely on an intraday rebound in AAPL. Being a market cap weighted index, which is calculated by the stock price of an index component multiplied by the number of shares outstanding, there has been some criticism of the NDX that it is exposed to a “top heavy” quality in that as AAPL continues to rally and hit new highs, the stock will become an even greater weighting in the index and thus have undue influence in future price direction in the index itself.

To mitigate the potential “overweighting” exposure to AAPL, First Trust Nasdaq 100 Equal Weighted Index Fund (NasdaqGM: QQEW) delivers exposure to the index itself, but each equity component is equal weighted and rebalanced regularly so as to avoid any “skew” effect from one or more names running in one direction. Thus, current top holdings include Netflix (NasdaqGS: NFLX - News), Seagate Technology (NasdaqGS: STX - News), and Micron Technology (NasdaqGS: MU - News) for instance.

Additionally, for those looking for specific “tech” exposure via a Nasdaq 100 type product for benchmark purposes, First Trust Nasdaq 100 Technology Sector (NasdaqGM: QTEC) is also available, and like QQEW, routinely rebalances the portfolio in efforts to keep the index equal weighted. Unlike the Nasdaq 100 index, which is heavy technology but not exclusively devoted to that sector, QTEC only owns equities that are in the technology sector.

As one might expect, both of these products have notably lagged QQQ itself year to date, largely because of the under-exposure to AAPL, as QQEW is only up 0.08% and QTEC down 0.22%.

In the trailing one year period, QQQ is up 9.66%, while QQEW has returned 2.43% and QTEC has lost 2.25%. However, with the recent shakeout that occurred just yesterday in the marketplace and with portfolio managers likely starting to reshuffle holdings headed into the end of the first quarter, perhaps those looking to maintain exposure to Nasdaq 100 stocks and and diversify away from AAPL to some degree may find appeal in the aforementioned funds.

First Trust Nasdaq 100 Equal Weighted Index Fund

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For more information on Street One ETF research and ETF trade execution/liquidity services, contact pweisbruch@streetonefinancial.com.

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