Suppose you're more of a passive investor and would rather own an entire index than pick individual stocks. In that case, there is a good chance you'll want to be looking at exchange-traded funds.
Many investors are not comfortable picking stocks that are poised for growth. This comes with higher risks than picking individual, blue-chip stocks, particularly ones that pay dividends. Why? Well, growth stocks tend to be more volatile and can have wide fluctuations in price.
As a result, investors tend to make emotional decisions. They buy when stocks are going up to ride the wave and panic sell them when they're going down due to fears that they bought too high.
So, how can you get exposure to some of the fastest-growing stocks in the United States with a click of a button and avoid excessive volatility? You could look to a NASDAQ ETF.
Don't get me wrong; the NASDAQ is typically more volatile than something like the S&P 500. However, getting exposure to many of the largest companies on the NASDAQ will normally have lower volatility than picking an individual stock on that Index.
With that said, let's look at some of the best NASDAQ ETFs to own today to get long-term exposure to some of the fastest and most promising companies in North America, particularly those who are frontrunners to be AI leaders.
We will have a wide variety of funds on this list, ranging from a broad-based NASDAQ ETF to one that sells covered call options on the Index itself. So, there should be enough variety here for every type of investor.
What are the best NASDAQ ETFs to buy right now?
- Invesco QQQ Trust (QQQ)
- Invesco NASDAQ 100 ETF (QQQM)
- Fidelity NASDAQ Composite ETF (ONEQ)
- JPMorgan NASDAQ Equity Premium ETF (JEPQ)
- Direxion NASDAQ-100 Equal Weight ETF (QQQE)
- ProShares Ultra QQQ (QLD)
Invesco QQQ Trust (QQQ)
The Invesco NASDAQ ETF is what I would call the "blue-chip" of NASDAQ ETFs. With over $210B in assets under management, it is one of the largest funds in the United States. The fund has been around for a long time, debuting in the late 1990s during the dot-com bubble. After posting mediocre returns for the first decade, it has soared in value in the post-financial crisis era.
The fund does not contain the entire NASDAQ index. Instead, it aims to track the NASDAQ-100 Index, the 100 largest non-financial companies on the NASDAQ Index. The fund contains around 100 holdings, give or take a few at times.
It's no surprise to see the major tech leaders at the top, such as Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), NVIDIA (NVDA), Meta Platforms (META), and Tesla (TSLA). At the time of writing, Apple is the only stock with a double-digit weighting in the portfolio.
Contrary to what most people think, the NASDAQ-100 and, thus QQQ itself is not a pure-play technology option. Yes, over 50% of the NASDAQ-100 is allocated to the technology sector, but it still contains double-digit weightings to the Communication Services and Consumer Cyclical sectors.
Over 60% of QQQ is allocated to large-cap growth stocks, and as a result, the fund does not pay much of a distribution. You'll earn a yield of around 0.5% on the fund.
In terms of fees, it has a management expense ratio of 0.2%, meaning you'll pay just $2 for every $1000 you invest annually to own it.
Overall, this is likely going to be the strongest option for many investors if they want to get exposure to the NASDAQ.
Invesco NASDAQ 100 ETF (QQQM)
Before I start with this one, I would just like to highlight that QQQ and QQQM, for the most part, are identical. They both track the NASDAQ 100 and are issued by the fund manager.
There is one key difference that separates these two funds, and it's fees. At this point, QQQM has a management fee of only 0.15%, while QQQ has a management fee of 0.2%.
So, you may be sitting there thinking, "Why would I ever invest in an identical, more expensive fund? Why not just buy the cheaper one?"
And to that, the answer is simply that it depends on your investing style. If you are a long-term buy-and-hold investor wanting to own a piece of the NASDAQ for the next 5, 10, 15, or even 20 years, QQQM will likely be the better fund out of the two.
Although a measly 5 basis point difference in management fee will not mean much over the longer term, it makes sense to save money where money can be saved.
However, if you're more of an active trader or want to take advantage of the options market, you likely will want to own QQQ. It is a much larger fund with a lot more daily volume, ultimately leading to tighter spreads and a more robust options market.
As mentioned, QQQM is virtually identical to QQQ outside of management fees. So, we won't go over the top holdings, distribution, or allocation again. Just know that if you're looking to buy and hold long-term and want to own an Invesco fund, this is likely the one you'll want to consider.
Fidelity NASDAQ Composite ETF (ONEQ)
Although Fidelity's NASDAQ ETF may seem similar to the two above, it's very different. That's because Fidelity tracks the entire NASDAQ Composite Index, whereas Invesco's funds aim to follow the NASDAQ 100 index.
The result is a significantly larger basket of holdings. At the time of writing, ONEQ contains over 1190 holdings, including many of the same major names you see in the other funds, such as Alphabet (GOOG), Tesla (TSLA), Amazon (AMZN, Microsoft (MSFT), and Apple (AAPL).
The impact of tracking the entire NASDAQ versus just the NASDAQ-100 is relatively small. The main difference is this fund will contain mid-single-digit exposure to small and mid-cap growth companies on the Index, whereas QQQ and QQQM were primarily large-cap.
To put some numbers to this statement, QQQ is over 90% weighted towards giant or large-cap companies. In contrast, ONEQ is around 75%, with the remainder being small to mid-caps.
Historically, tracking the entire NASDAQ Composite hasn't been the best performance-wise. ONEQ has struggled to keep pace with QQQ, lagging significantly in overall returns. This is very likely due to the emergence of big tech in a post-financial crisis environment.
The fund has management fees of 0.21%, meaning that every $1000 you invest will cost you $2.10 a year. And it does pay one of the higher distributions on this list at 0.76% but is still negligible for those looking for income.
Speaking of income, let's move on to a fund that aims to provide just that.
JPMorgan NASDAQ Equity Premium ETF (JEPQ)
Before I go too deep on JEPQ, I would like to highlight that this is an actively managed fund that attempts to provide investors with an outsized income source via large dividends. If you're looking for bare-bones exposure to the NASDAQ, this fund likely will not be for you.
However, suppose you're looking to generate a strong stream of passive income at the risk of underperforming the broader Index. In that case, it's undoubtedly a fund gaining much popularity over the last few years.
The fund debuted in early 2022 as the passive income movement online skyrocketed in popularity. JPMorgan wanted income investors to have exposure to the NASDAQ. This Index doesn't generate much in terms of dividends but actively manages to fund to provide large distributions to its investors.
It does this through active management and a strategy called covered call writing. I won't go too deep on the strategy in this article, except to say the fund collects premiums by selling call options on its holdings along with equity-linked notes. It hopes the option contracts expire worthless, and from there, it can issue the added premiums to its holders via a higher distribution; and equity-linked notes are a specific financial product that combines fixed income with added bonuses if the linked stock performs well.
The fund has assets under management of just under $5B at the time of writing, which is impressive considering it only debuted in 2022. As I mentioned, the passive income craze caught on quickly, and JPMorgan aimed to give investors what they wanted. In terms of fees, it's a very low-fee fund considering the active nature of it. For every $1000 you invest, you'll pay just $3.50 in management fees annually. It has a current trailing yield above 10%.
The fund's benchmark index is still the NASDAQ-100. However, it doesn't contain all 100 stocks on it. Remember, this is an actively managed fund, so it doesn't need to mimic the Index directly and can certainly deviate at times. It also is not as heavily weighted towards the top holdings like Apple. However, it still does take up a sizable high-single-digit chunk of the portfolio.
If you're an income seeker, add this to your watchlist.
Direxion NASDAQ-100 Equal Weight ETF (QQQE)
Another unique NASDAQ ETF is the equal-weighted fund from Direxion. This fund takes a unique approach to expose an investor to the NASDAQ-100 as instead of weighting the companies based on market cap, which is what the Index does, it takes equal weight positions in all companies.
That means a small or mid-cap company on the Index has the same weighting as a mega-cap tech giant like Apple. Why exactly would you want this type of exposure? Realistically, it would be because you feel the mega-cap technology companies have exhausted their growth and don't want to over-expose yourself to them.
Because the fund serves a niche purpose for those who want an equal-weighted option, the management fees are higher at 0.35%. It likely has to charge this management fee because it has a relatively small AUM compared to the other funds on this page at $865M.
The equal-weighted nature of this fund has resulted in significant underperformance over the years, as the larger-scale tech companies have crushed the mid to small-cap companies inside of the Index. Past returns are not a reflection of future results. Mid to small caps on the Index could outperform moving forward relative to the mega caps. That's exactly the thesis behind owning this fund. I just thought I would highlight its past difficulties.
At the time of writing, it pays a distribution of around 0.8%.
ProShares Ultra QQQ (QLD)
Before discussing QLD, I'd like to note that this is a leveraged ETF. As mentioned, I wanted to cover various NASDAQ ETFs on this page. Because of the leveraged versions' popularity, I have decided to include them.
However, you must determine your overall risk tolerance and decide if a fund like this suits you. Because these funds are leveraged, they are meant to be trading vehicles, not long-term investing vehicles.
The fund aims to provide 2x the daily results of the NASDAQ-100 Index. If the Index moves up 1%, this fund should move up just under 2%, as fees and expenses must be accounted for. Conversely, if the NASDAQ-100 loses 1%, this fund will lose more than 2%.
This type of leverage has the potential to pay off significantly during bull runs but also leave investors in a world of trouble during bear runs, which is exactly why this fund is not meant to be held for the long term but traded over the short term.
Because of its leveraged nature, management fees are a lot higher. Every year you will pay a management fee of $9.50 for every $1000 invested. It pays next to no distribution at 0.16% and has around $5.5B in assets under management at the time of writing.
To give you an idea of the leveraged nature of this fund relative to something like QQQ, through the first seven months of 2023, QQQ increased by 44%. QLD, on the other hand, increased by nearly 100%.
Sounds amazing, right? Well, that's the good. Let's look at the bad. If you held the fund from the start of 2022 until the end of 2022, you lost nearly 60%, while QQQ lost 30%.
This is exactly why, despite the fund's meteoric rise through the first half of 2023, it still lags behind QQQ when we look to returns from January 1st, 2022 and beyond. This highlights the fact this is not a long-term buy-and-hold option even further.
If you're looking to speculate on the short-term upwards movements of the NASDAQ, this is certainly a fund you could keep an eye on.
Is it smart to own NASDAQ ETFs?
This all depends on one's risk tolerance. For someone who wants income out of their portfolio, the low-yielding, high-growth nature of the Index may not appeal to you. But to someone with a long-term time horizon and no need for income immediately, the Index is certainly attractive as it contains some of the best innovators and corporations on the planet, those who are developing new technology at a rapid pace.
Ultimately, the decision is up to you and should be one you take some time to consider.
