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Proprietary Data Insights Top ETF Searches This Month
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Different Types of ETFs For a few days in February, starting today, The Juice is focusing on ETF – exchange-traded fund – investing. We’ll go from the basics to deep in the weeds. For example, today we start with a primer on investing in indexes via ETFs. Then, we detail the differences among three types of ETFs that provide exposure to technology stocks. Because it was a rough year for the market, we focus on 2022 performance to illustrate the distinctions in both areas. The Actual Index Don’t confuse an index ETF with the actual index. To color this disclaimer, we use the Nasdaq. There’s the Nasdaq Composite Index (.IXIC), which tracks the performance of almost all Nasdaq stocks. Then there’s the Nasdaq-100 Index (NDX), which tracks the performance of the 100 largest nonfinancial companies from the Nasdaq Composite. Then there’s the ETF product you’ve probably heard of, the Invesco QQQ Trust Series 1 (QQQ), which tracks the performance of the Nasdaq-100. Day in and day out, it ranks among the most searched ETFs in Trackstar, our proprietary sentiment indicator. Source: Google Finance This look at 2022 YTD performance of all three tickers shows virtually identical (and ugly) returns. While it makes sense that the QQQ ETF and the Nasdaq-100 mirror one another, you might wonder why the larger Nasdaq Composite – which contains more than 3,000 stocks – delivered basically the same performance last year. It’s because the top 100 nonfinancial Nasdaq stocks account for roughly 90% of the movement in the broad Nasdaq Composite. This is due to the size of these 100 largely tech companies. There’s also an ETF that aims to mirror the Nasdaq Composite’s performance: the Fidelity Nasdaq Composite Index ETF (ONEQ). Unsurprisingly, it posted a negative return of around 33% in 2022. Of course, the Nasdaq-100 and the QQQ are tech-heavy. This is where things get interesting. Scroll with us to dig deeper into the composition of tech-focused ETFs for one way to construct a well-rounded tech-stock portfolio. And later this month, we’ll look at constructing portfolios from other sectors as well as the broad stock market. |
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ETF Investing |
3 Tech ETFs to Diversify Your Portfolio |
Key Takeaways:
First, look at the following chart. We’ll make sense of it in a second. Source: Google Finance Whereas the tickers we showed you in the first section of today’s Juice all produced around -33% returns for 2022, there’s more variation among the three ETFs in the chart above (though all still had negative returns): the aforementioned QQQ, the Technology Select Sector SPDR Fund (XLK), and the ProShares S&P Technology Dividend Aristocrats ETF (TDV). We picked these three because they represent one way to achieve some diversification through tech-ETF investing. With QQQ, you get:
Lots of exposure to big tech, but it’s hardly diversified. If you put all your eggs in QQQ in 2022, you went down with the ship. With XLK, you get:
With TDV, you get:
The Bottom Line: As today’s tutorial makes clear, ETF investing in tech goes beyond QQQ. As you move into different types of tech-focused ETF products, you increase your diversification, particularly from an exposure standpoint. For example, while Apple and Microsoft dominate QQQ and XLK, they’re relatively small players in TDV. TDV’s additional requirement of dividends created not only a different landscape of stocks and weightings, but also relatively better performance in 2022. In tomorrow’s Juice, we focus on dividend investing with ETFs and repeat this exercise by highlighting differences in composition and returns for a few of the many dividend ETFs at your disposal. |
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