The Nasdaq stock exchange features some of the most appealing investments, particularly among rapidly growing tech companies. By investing in a Nasdaq index fund, you can gain exposure to major players like the Magnificent 7 stocks. However, with various funds available, it’s crucial to choose wisely.

Here are some leading Nasdaq exchange-traded funds (ETFs) and essential factors to consider when selecting one.

6 top Nasdaq ETFs

The funds listed below primarily invest in the Nasdaq-100 index, which comprises the top 100 non-financial stocks trading on the Nasdaq stock exchange, including major companies like Apple, Amazon, Microsoft, Alphabet, Meta Platforms, and Netflix. This is distinct from the Nasdaq Composite, which includes all stocks on the exchange.

Additionally, some of the ETFs mentioned include leveraged and short funds. Leveraged funds aim to amplify returns beyond the index’s performance, while short funds enable investors to profit from a decline in the index. (Data as of May 13, 2024.)

Invesco QQQ Trust (QQQ)

This fund aims to replicate the Nasdaq-100 index and has significantly outperformed it.

  • Annual returns (5 years): 19.8%
  • Expense ratio: 0.20%

Invesco Nasdaq 100 ETF (QQQM)

Also from Invesco, this fund tracks the Nasdaq-100 index at a lower cost. Although it has not been around for five years, its three-year returns are comparable to those of QQQ.

  • Annual returns (3 years): 11.5%
  • Expense ratio: 0.15%

ProShares UltraPro QQQ (TQQQ)

This leveraged fund uses derivatives to amplify the Nasdaq-100 index’s return, aiming for three times the daily return of the index. It comes with a higher expense ratio for this leverage.

  • Annual returns (5 years): 31.8%
  • Expense ratio: 0.88%

Direxion Nasdaq-100 Equal Weighted ETF (QQQE)

This fund provides equal weighting across Nasdaq-100 stocks, rather than focusing heavily on the largest tech stocks.

  • Annual returns (5 years): 13.8%
  • Expense ratio: 0.35%

ProShares UltraPro Short QQQ (SQQQ)

This fund benefits from declines in the Nasdaq-100 index, effectively allowing investors to short the index in a convenient fund format.

  • Annual returns (5 years): -58.4%
  • Expense ratio: 0.95%

Fidelity Nasdaq Composite Index ETF (ONEQ)

This fund tracks the Nasdaq Composite index, providing broader exposure than the Nasdaq-100 and less concentration in the largest tech stocks.

  • Annual returns (5 years): 16.8%
  • Expense ratio: 0.21%

Risks of ETFs

ETFs offer an appealing way to invest in the market by providing returns linked to specific indices, but they come with some considerations:

Volatility: Like individual stocks, ETFs can be volatile, though generally less so than single stocks. It’s important to recognize that short-term fluctuations are common, and you may need to hold onto your investment for several years to realize strong long-term returns.

Tracking Risk: ETFs that track an index might not perfectly replicate that index’s returns, a phenomenon known as tracking risk. While some funds have outperformed their indices, there’s also the risk of underperformance if the fund fails to track its benchmark accurately.

Structural Costs: Leveraged and short ETFs have additional costs due to their use of derivatives, which require regular re-establishment. These costs can erode returns over time, even if the fund performs well in the short term.

For broader diversification beyond just the largest tech stocks, investors might consider other popular indices. The Standard & Poor’s 500, which encompasses a wide range of industries, is a leading choice. ETFs based on the S&P 500 and Nasdaq-100 are frequently among the top performers, offering both high returns and low costs.

In Conclusion

ETFs provide a convenient way to invest in the Nasdaq stock index, giving you access to its potential strong returns with ease. However, it’s crucial to fully understand what you’re purchasing and ensure it aligns with your investment goals and risk tolerance. Consider working with a top broker specializing in ETF investments, as they offer a range of features designed to support your success.