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Equal-Weight ETF Options to Tap into the Nasdaq Rally


With the Nasdaq Composite touching near 14-year highs, exchange traded fund investors may want to consider equal weight options on the tech-heavy Nasdaq.

The Nasdaq hit a 14-year high Monday, closing at 4,309.03.

“People are recognizing that while some economic data has been muted, there is still a lot of value in the market based on corporate cash positions and multiples,” Matthew Keator, partner in the Keator Group, said in a Reuters article. ” From a perspective of overall fundamentals, things look pretty good, especially relative to other asset classes.”

The index is up 3.0% so far this year and has gained 37.6% over the past year.

Most investors interested in gaining exposure to the Nasdaq look at PowerShares QQQ (QQQ) . However, investors should be aware that the ETF tracks the Nasdaq-100, not the Nasdaq Composite – the Nasdaq-100 includes the Nasdaq Composite’s 100 largest nonfinancial stocks by market capitalization. QQQ is up 2.8% year-to-date and rose 36.2% over the past year.

QQQ is heavily allocated to large caps. For instance, Apple (AAPL) has a 11.5% weight and Google (GOOG) makes up 8.1% of the fund. Mega-caps are 59.7% of the ETF, followed by 30.% in large-caps and 10.3% in mid-caps.

Alternatively, there are two equal-weight Nasdaq-100 ETF options that allocate a higher percentage weight into smaller companies. By allocating the same weight across holdings, each stock in the index is given the same importance.

“The result is a more diversified performance contribution from the individual companies, and sectors that are in the index,” according to Direxion.

The Direxion NASDAQ-100 Equal Weighted Index Shares (QQQE) , which has $25.7 million in assets and a 0.35% expense ratio, maintains a relatively even distribution among component weightings, with its largest allocation in Illumina (ILMN) at 1.4%. Capitalization weightings include mega-caps 18.1%, large-caps 46.5% and mid-caps 35.5%.

Additionally, the First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW) , which has $497.4 million in assets and a 0.60% expense ratio, also follows an equal-weight methodology with the largest weight in Illumina at 1.6%. Capitalization weightings include mega-caps 17.6%, large-caps 46.7% and mid-caps 35.6%.

Comparing performances, the equal-weight methodology has been outperforming, with QQQE up 39.2% and QQEW up 38.3% over the past year. Over the past five-years, QQEW’s average annualized return was 27.4%, compared to QQQ’s 26.9%.

For more information on the Nasdaq-100, visit our Nasdaq category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.