Investing in the Nasdaq 100 doesn’t mean investors are only relegated to getting tech exposure. While the Nasdaq 100 has fallen 27% year-to-date, there’s another way to mitigate downside risk.
One way is via the First Trust NASDAQ-100 Ex-Technology Sector Index Fund (QQXT). The index that the fund tracks is equal-weighted, composed of the securities comprising the NASDAQ-100 Index that are not classified as “technology” according to the Industry Classification Benchmark (ICB) classification system.
Tech has been one of the heaviest-hit sectors after experiencing momentous strength during the height of the pandemic. However, with inflation fears hitting the capital markets, tech has been suffering, but stripping out that component in QQXT could help mitigate risk.
When juxtaposed with the Nasdaq 100, QQXT was actually down about 20% as of May 21, versus the broad-based Nasdaq 100’s 27%. Another feature of built-in risk management is the equal-weighted strategy of the fund.
One way to address volatility is to reduce concentration risk by not proverbially putting all eggs in one basket, or, in the case of the capital markets, one or a few stocks. This is where an equal-weight strategy can come into play.
Essentially, a strategy like this spreads exposure equally over various stocks so the biggest household names don’t get the most focus. As such, investors using such as a strategy can gain upside across a spectrum of stocks irrespective of market cap size.
The Other Side of the Trade
If the tech sector starts to show signs of life again, investors can re-add exposure via the Nasdaq 100 with an emphasis on tech. That said, investors who want to maintain tech exposure can look to the First Trust NASDAQ-100-Technology Sector Index Fund (QTEC).
Like QQXT, the index that QTEC tracks is an equal-weighted index. In this case, the index is composed of the securities comprising the NASDAQ-100 Index® that are classified as “technology” according to the Industry Classification Benchmark classification system.
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