The S&P 500 tends to get all the attention from retail investors, ETFs such as the SPY in the United States which tracks the performance of the S&P 500 does an average daily volume of $82m (Sept 22).
Not far behind in popularity are ETFs that track the tech stock heavy Nasdaq 100 Index, the most popular of which is the Invesco issued QQQ ETF that does an average daily volume of $56m (Sept22).
The QQQ is only available to investors based in the United States, but in this blog post, we will be looking at your options for investing in an ETF that also tracks the Nasdaq 100 Index.
Nasdaq 100 Index QQQ European Equivalents
| Ticker | Manager | Trading Currency | CCY Hedged? | Accum/Dist? | Exchange | Expense Ratio | Broker |
|---|---|---|---|---|---|---|---|
| EQQQ | Invesco | Euro | No | Distributing | Xetra | 0.30% | Bux Zero |
| EXXT | iShares | Euro | No | Distributing | SIX | 0.31% | Bux Zero |
| CNDX | iShares | US Dollar | No | Accumulating | LSE | 0.33% | Trading 212, Degiro |
| CNX1 | iShares | GBP | No | Accumulating | LSE | 0.33% | Trading 212 |
| NQSE | iShares | Euro | Euro Hedged | Accumulating | Xetra | 0.36% | Trading 212, Degiro |
| SXRV | iShares | Euro | No | Accumulating | Xetra | 0.33% | Trading 212, Degiro |
| EQGB | Invesco | GBP | GBP Hedged | Accumulating | LSE | 0.30% | Trading 212, Degiro |
The above table gives you options for Nasdaq 100 tracking ETFs, as you can see there are plenty of ETFs to choose from. If you now feel confused about which ETF is the right one to go with, don’t worry we will now go over the key criteria to be aware of when making your choice.
Accumulating vs Distributing Funds: do you want to receive periodic cash dividend payments? If you do then you should go with one of the funds that is Distributing.
Accumulating funds will automatically reinvest the dividends for you and you will end up with more units of that fund. The compound effect of the growth of the additional units you have invested will see you make a marginally higher return than if you we to invest in the distributing equivalent of that ETF.
Hedged vs Unhedged: When you go with a currency hedged ETF you are protecting against the dollar depreciating – remember the base currency of the Nasdaq 100 Index is always US Dollar. The only issue with hedging is that you forego any potential upside due to currency swings ( the US Dollar appreciating in this case).
Conversely, in times when the US Dollar is appreciating in value, it is more beneficial to be invested in an unhedged ETF.
Fees: The differences in the expense ratios are quite minimal from the table above – all ranging from 0.30-0.36%. One thing to keep an eye out for is additional charges added on by brokers for trading on smaller exchanges.
Trading Currency: the trading currency will make no difference to your investing returns. It just prices in the movement of the forex as well as the movement of the index itself. It may be useful for some investors to see the total return in their local currency. For instance if you were invested in an ETF with the USD trading currency the FX gains/losses will be hidden until you sell your investment.
What kind of companies are included in the Nasdaq 100 Index?
The Nasdaq 100 Index is comprised of 102 companies – heavily weighted toward Tech companies. At the time of writing, companies such as Apple, Microsoft, Amazon, Tesla, Google, Meta, and NVIDIA made up 48% of the weighting of the entire index.
Performance of Nasdaq 100 against S&P 500 over the past 5 years
Over the past 5 years the performance of the Nasdaq 100 Index (84.10%) has far outpaced the returns of the S&P 500over the same time period (42.80%).
The below table gives an annual breakdown of the performance of each index.
| Year | S&P 500 | NASDAQ 100 |
|---|---|---|
| 2017 | 19.42% | 32.66% |
| 2018 | -6.24% | -0.12% |
| 2019 | 28.88% | 38.96% |
| 2020 | 16.26% | 48.4% |
| 2021 | 26.89% | 27.42% |
| 2022 | -23.62% | -32.34% |
Even though the Nasdaq 100 has historically performed over the last 5 years this was a time period of low interest rates and record breaking financial stimulus in the markets which heavily favoured tech companies with lofty valuations.
The year-to-date performance in 2022 is a different story, the Nasdaq 100 has taken a far bigger hit than the S&P 500 and is down a further 8.72% in comparison.
Leveraged Nasdaq 100 products
Investors should be careful when using leveraged Nasdaq 100 products such as QQQ3. This financial product issued by Wisdom Tree promises to return 3X the daily returns of the Nasdaq 100 Index. So if the Nasdaq 100 rises by 1%, the QQQ3 ETF will increase by 3%.
These financial products are only intended to be used for one day and when you hold them for longer than this your expected returns will differ considerably. This is due to the fund manager periodically re-leveraging their investments.
Disclaimer: This blog post is for informational and educational purposes only and should not be construed as financial advice.