Exchange-traded funds, or ETFs, are one of the easiest ways to diversify your investment portfolio. The Nasdaq 100 is a stock market index made up of the 100 largest companies listed on the Nasdaq exchange, excluding financial sector companies. The market capitalization-weighted Nasdaq-100 index is subtly different from the popular Nasdaq composite index. While the Nasdaq-100 components make up more than 90% of the weight of the Nasdaq composite, the Nasdaq 100 avoids the smallest of the more than 3,900 stocks included in the Nasdaq composite.
Here are six of the best ETFs to buy that track the Nasdaq-100 index:
The Invesco QQQ ETF is the largest Nasdaq-100 ETF by an order of magnitude. The fund’s $253 billion in assets under management is more than 10 times the size of the next-largest Nasdaq-100 ETF, and its average daily trading volume of 45 million shares is more than 20 times any other Nasdaq-100 ETF. Needless to say, the QQQ ETF provides plenty of liquidity. Because the fund tracks the Nasdaq 100, its top holdings include Microsoft Corp. (MSFT), Apple Inc. (AAPL) and Nvidia Corp. (NVDA), and it’s heavily allocated (50%) to the technology sector. The fund has a 0.2% expense ratio, or $20 annually for a $10,000 investment.
Invesco Nasdaq 100 ETF (QQQM)
Long-term investors considering buying and holding QQQ should also check out Invesco’s newer Nasdaq-100 fund, QQQM. Invesco launched the QQQM in late 2020 as a lower cost Nasdaq-100 fund. With around $23 billion in assets and a daily average trading volume of 1.9 million shares, the QQQM fund is not nearly as liquid as the QQQ. The plus side is that investors can save a few dollars on fees given its expense ratio is just 0.15%. As a result of the slight fee difference, QQQM has outperformed QQQ by a margin of 0.07 percentage points over the past three years.
Direxion Nasdaq-100 Equal Weighted ETF (QQQE)
The Direxion QQQE ETF provides investors with a unique way to track the Nasdaq 100. Like the Nasdaq itself, the QQQ and QQQM funds are market-cap weighted, but the QQQE fund is equal weighted. In other words, the index allocates 1% of its assets to each of the 100 constituents in the Nasdaq 100, regardless of their market caps. The QQQE fund has $1.2 billion in assets under management. The equal-weighted strategy hasn’t worked well in the past three years, and the QQQE fund has lagged behind the QQQ fund by about 5 percentage points. The QQQE fund has a 0.35% expense ratio.
Invesco ESG Nasdaq 100 ETF (QQMG)
QQMG offers investors another subtle twist on Invesco’s popular QQQ fund. The QQMG fund was created in 2021 to invest in Nasdaq-100 companies that also meet a set of standards related to environmental, social and governance, or ESG, principles. For example, QQMG excludes stocks involved in certain businesses, including companies related to cannabis, alcohol, controversial weapons, military weapons, gambling, nuclear power, tobacco, and oil and gas. As a result, QQMG only holds 94 of the 100 Nasdaq-100 components and has outperformed QQQ by about 4 percentage points since its inception. The QQMG fund has a 0.2% expense ratio.
ProShares Ultra QQQ (QLD)
For investors who want to take a more aggressive approach to investing in the Nasdaq 100, especially traders with a shorter investment horizon, the QLD fund is a leveraged ETF designed to generate two times the daily returns of the Nasdaq 100. However, leveraged ETF investors should understand double the daily gains also means double the daily losses on days the Nasdaq drops. Because leveraged ETFs are designed for short-term trading, hold derivatives that suffer from time-loss decay and have aggressive turnover, they tend to underperform their target significantly in the long term. The QLD also has a high 0.95% expense ratio.
ProShares UltraPro QQQ (TQQQ)
The TQQQ ETF takes leverage to the next level, providing three times the daily returns of the Nasdaq 100. Like the QLD fund, investors are free to hold the TQQQ ETF for longer than one day. But the longer you hold it, the more it’s likely to underperform its target. The TQQQ has underperformed QQQ by about 6 percentage points overall in the past three years. That being said, the TQQQ fund is great for short-term Nasdaq-100 traders seeking to magnify their gains or overweight Nasdaq-100 stocks in a portfolio without using extra cash. TQQQ has a 0.88% expense ratio.
