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Nasdaq Outperforms: 3 ETFs in Focus

Zacks Equity Research

While most of the major benchmarks including the Dow and S&P 500 struggled to finish in the green this year, the Nasdaq Composite Index Nasdaq-100 Index have outperformed them to register healthy gains in the year-to-date frame. As of Dec 28, the Nasdaq Composite Index and Nasdaq-100 Index have returned 6.4% and 9.1%, respectively. On the other hand, the Dow and S&P 500 declined 1.6% and 0.1% this year.

 

Concerns That Dragged Markets Down  

 

The slump in oil prices emerged as one of the major concerns of the year. The absence of any reduction in oil supply by the major oil producers including the OPEC, U.S. and Russia and a drastic decline in global oil demand, particularly in China, the biggest consumer of oil, had a negative impact on crude. This also had a huge impact on energy shares. The broader energy sector – Energy Select Sector SPDR ETF (XLE) – lost 23.6% this year (read: 3 Energy ETFs Down at least 20% in the Past One Month).

 

Meanwhile, overseas concerns dampened investor sentiment throughout the year. Sluggish global growth worries including that in China, Eurozone and Japan weighed on the markets. For some time, concerns over the possibility of Greece’s exit from the Eurozone were another big worry in the first half of the year. And to top it all, geo-political upheavals in regions like Yemen, Ukraine and Syria cast a shadow on the investment world.

 

Separately, fears of a rate hike, which finally came in the last month of the year, left its share of impact on the benchmarks. In this backdrop, a strengthening U.S. dollar affected earnings of the major companies over the year. These concerns also led to a high level of volatility, which also affected the benchmarks (read: 5 ETF Ways to Keep Volatility at Bay).

 

What Boosted Nasdaq?

 

Despite these concerns, the Nasdaq managed to post healthy gains this year. Strong gains from major technology companies including Amazon.com, Inc. (AMZN), Alphabet Inc (GOOGL) and Microsoft (MSFT) boosted the index over the major part of the year. Shares of Amazon, Alphabet and Microsoft gained 117.6%, 47.4% and 20.5%, respectively. Meanwhile, strong quarterly results from Apple (AAPL) helped the Nasdaq to finish in the green for 2015.

 

A strong rebound in biotech stocks also had a positive impact on the index. Biotech stocks were hit hard in September following a tweet by Hillary Clinton about the pricing of drugs. Clinton said that she will lay out a plan to restrict “price gouging” in the specialty drugs market. However, encouraging earnings results, positive guidance and product approvals helped the sector to rebound strongly.

 

The iShares Nasdaq Biotechnology ETF (IBB) that tracks the performance of biotech stocks included in the Nasdaq gained 11.2% and 16.5% in the year-to-date period and over the past three-month period, respectively. Additionally, limited exposure to the beleaguered energy sector has helped the index to settle in positive territory (read: Biotech ETFs Looking Attractive After Sell-Off).

 

3 ETFs to Watch

 

In this favorable environment, we have highlighted three ETFs that track the performance of stocks included in the Nasdaq, and have posted significant gains this year and over the past three-month period. As the Nasdaq is likely to continue this positive trend in the near term, these three ETFs will remain on investor radar.

 

PowerShares QQQ ETF (QQQ)  

 

This ETF follows the Nasdaq-100 Index, holding 106 stocks in the basket. Apple takes the top spot with nearly 11.2% share of assets, followed by Microsoft (8.4%) and Amazon (6%). The product is quite popular with nearly $42 billion of AUM and a solid volume of around 36 million shares a day. It charges investors 20 bps in fees per year. The fund has returned 9% and 13.1% in the year-to-date frame and over the past three-month period respectively. It has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: 10 Most Heavily Traded ETFs of 2015).

 

First Trust NASDAQ-100 Equal Wtd ETF (QQEW)

 

QQEW looks to replicate the performance of the NASDAQ-100 Equal Weighted index. The fund invests $529.1 million of assets in 106 stocks. No stock accounts for more than 1.08% of the basket. The fund appears heavily invested in the Technology sector with about 36.1% of investment, followed by about 30.3% in Consumer Services and 15% in Health Care. The fund charges 60 bps in annual fees. The fund has returned 2% and 11.1% in the year-to-date frame and over the past three-month period respectively. The fund presently carries a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

 

Fidelity Nasdaq Composite Tr Stk ETF (ONEQ)

 

This ETF follows the Nasdaq Composite Index, holding 1972 stocks in the basket. Apple takes the top spot with nearly 7.8% share of assets, followed by Microsoft (5.8%) and Amazon (4%). The product has amassed $673.6 million in its asset base and trades in moderate volume of around 25,000 shares a day. It charges investors 21 bps in fees per year. The fund has returned 6.3% and 11.6% in the year-to-date frame and over the past three-month period respectively.

 

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