ETF Chart of the Day: Nasdaq Buffet

ETF Trends

QQQ (PowerShares QQQ Trust, Expense Ratio 0.20%) options activity is heating up lately as we move into core earnings season for the major components of the underlying Nasdaq 100 Index, as #5 index component INTC just released their numbers last night after the bell.

INTC meanwhile is down more than 4% this morning on disappointing results. The other top four holdings in the market cap weighted Nasdaq 100 Index, all tech companies by the way, are scheduled to release earnings in the near term as follows: MSFT 1/23, AAPL 1/27, GOOG 1/30, and AMZN 1/30 so there is no reason to believe that activity in QQQ and related ETP products will level off anytime soon.

The cap weighted version of the Nasdaq 100, and tracked by QQQ, has a whopping 54.70% weighting to the Technology sector, demonstrating the run that the sector has had in the past couple years, driving this weighting even higher over time due to the mechanics of market cap weighted index investing.

For those interested in exposure to Nasdaq stocks but either believe that the Tech sector is frothy and/or simply want more diversified sector exposure across the Nasdaq universe, equal weighted products like QQEW (First Trust Nasdaq-100 Equal Weighted Index, Expense Ratio 0.60%) and QQQE (Direxion Nasdaq-100 Equal Weighted Index, Expense Ratio 0.35%) will certainly look appealing. Both funds remain rather small in asset sizes relative to the mammoth QQQ ($44.29 billion in assets under management) as QQEW has raised $290.6 million in assets while QQQE currently has $24.3 million invested in the fund.

Furthermore, some investors may take a look at QQQ and decide that they do not have “enough” exposure to Technology, basically the flipside of the above scenario where investors may consciously be looking to be equal weighted. That said, First Trust also offers a Technology-pure Nasdaq 100 targeted fund, symbol QTEC (First Trust Nasdaq-100 Technology Sector Index, Expense Ratio 0.60%), and the fund appears to be on some, but not all
radars ($178 million in assets under management, ADV 27,500 shares).

The fund employs an equal weighted methodology, which obviously makes a huge difference in keeping the fund from being heavily over-weighted Large Cap tech, such as the likes of AAPL, MSFT, GOOG, and so on. Instead, top holdings of QTEC are currently CSCO (2.60%), NXPI (2.58%), SYMC (2.56%), EQIX (2.54%), and BRCM (2.54%). Some of these stocks like CSCO, SYMC, and BRCM are former late 90s-early 2000s stock performance superstars, whereas NXPI and EQIX may not exactly be household names for all.

First Trust NASDAQ-100-Technology Sector Index Fund

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