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 (NasdaqGS: 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 (NasdaqGS: AAPL) has a 11.5% weight and Google (NasdaqGS: 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 (NYSEArca: 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 (NasdaqGS: 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 (NasdaqGS: 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.