Business

6 Top Nasdaq ETFs For 2024

February 10, 2024

getty

The Nasdaq Composite has likely made a few millionaires in recent years. While the index was down 33% in 2022, it’s grown between 21% and 43% in every other year since 2019.

Investing in a Nasdaq ETF is a simple way to add some of that growth potential to your own portfolio. If you can withstand its volatility, it offers a gateway to investing in some of the most innovative and groundbreaking companies of our time. Read on to learn more about Nasdaq ETFs, including which ones look promising for 2024 and beyond.

Breaking Down Nasdaq ETFs

Nasdaq exchange-traded funds are investment funds that base their portfolio strategy on a Nasdaq index. Nasdaq indexes are different groupings of stocks that are listed on the Nasdaq exchange.

Understanding Nasdaq ETFs

Understanding Nasdaq ETFs begins with learning about the indexes they replicate. These indexes include the Nasdaq Composite, Nasdaq-100, Nasdaq-100 Equal Weighted Index, Nasdaq Next Generation 100 and the Nasdaq-100 ESG Index.

Nasdaq Composite includes all stocks listed on the Nasdaq exchange. There are more than 3,500 constituents, which include Apple (AAPL), Microsoft (MSFT) and Amazon (AMZN). This index is weighted by market capitalization, which means larger companies have a proportionally larger influence over index performance. Technology stocks comprise nearly 60% of the Nasdaq Composite.
Nasdaq-100 includes the 100 largest non-financial stocks on the Nasdaq. This index uses a modified weighting system that relies on two measures of market capitalization. The Nasdaq-100 is rebalanced quarterly.
Nasdaq-100 Equal Weighted Index includes the Nasdaq-100 stocks, weighted equally rather than by market capitalization.
Nasdaq Next Generation 100 includes the 101th to 200th largest stocks on the Nasdaq, in terms of market capitalization. This index is also rebalanced quarterly.
Nasdaq-100 ESG Index screens Nasdaq-100 constituents on ESG criteria. ESG stands for environmental, social and governance; these are the three pillars of sustainability tracking and reporting. The Nasdaq-100 ESG index is rebalanced quarterly in March, June, September and December.

Some Nasdaq ETFs look to replicate the performance of their underlying index, while others modify the strategy in some way. Those modifications can include shorting the index or using leverage.

Shorting the index: A short position is a bet the asset will decline. Investors who believe Nasdaq stocks are poised to lose value could open a short position with an inverse Nasdaq ETF. Inverse ETFs gain when the benchmark index falls.
Use of leverage: Leveraged index ETFs use debt to amplify the returns of the underlying index. This is risky because the amplification occurs whether the index goes up or down.

Advantages Of Nasdaq ETFs

People invest in Nasdaq ETFs because they provide diversified access to high-growth Nasdaq stocks. The best of Nasdaq ETFs also have low expense ratios, which means investors don’t pay too much for the convenience of a fund vs. individual stocks.

The growth story of the Nasdaq has come into its own in the last 20 years. Since January 2000, the Nasdaq Composite has grown 283% while the S&P 500 grew 236%. In the last 10 years, that performance gap has widened. The Nasdaq Composite expanded 265% compared to 168% for the S&P 500.

Those gains have not been linear, of course. For example, the composite was down more than 30% in 2022. Nasdaq stocks, even the biggest of them, can be volatile. For that reason, Nasdaq exposure—and even through a diversified Nasdaq ETF—requires a good dose of risk tolerance.

Methodology For These Picks

The best Nasdaq ETFs for 2024 are funds that pursue long positions in a Nasdaq index without leverage. Inverse and leveraged ETFs may suit some specific investing goals, but they’re too risky to be included here.

Additionally, all six ETFs below have expense ratios no higher than 0.35%. A fund’s expense ratio quantifies what investors are charged annually for the fund’s administrative costs. A ratio of 0.35% equates to $35 per year for every $10,000 invested.

A lower expense ratio keeps more of your money invested in the underlying assets, which contributes to higher returns over time.

The brain trust at Forbes has run the numbers, conducted the research, and done the analysis to come up with some of the best places for you to make money in 2024. Download one of Forbes’ most popular and widely anticipated reports, 12 Best Stocks To Buy for 2024.

The 6 Best Nasdaq ETFs For 2024

The table below introduces the six best ETFs for Nasdaq exposure, ordered from largest to smallest.

Fund websites

Invesco QQQ (QQQ)

Date launched: March 10, 1999
One-year NAV return: 54.7%
Annualized NAV return since inception: 9.5%
Number of holdings: 101

Invesco QQQ Overview

QQQ tracks the Nasdaq-100 using a full replication strategy. Full replication means the fund holds all index constituents, rather than a representative sample.

Since inception, QQQ’s annualized return of 9.5% is 23 basis points lower than its index. The shortfall, called tracking difference, is largely due to the fund’s 0.20% expense ratio. Timing of rebalancing trades can also contribute to tracking difference.

Note that a large and persistent tracking difference beyond the expense ratio would be cause for concern. That would indicate the fund is not efficiently representing its benchmark index.

Why QQQ Is A Top Pick

In terms of popularity, QQQ is the top Nasdaq ETF. The fund is at least 10 times larger than any other option on this list. QQQ also has ample trading volumes, which means you can buy and sell shares easily and quickly.

QQQ also has enviable performance metrics. The fund’s five-year annualized return of 22.4% handily beats S&P 500 funds over the same timeframe.

Invesco Nasdaq 100 ETF (QQQM)

Date launched: October 13, 2020
One-year NAV return: 54.9%
Annualized NAV return since inception: 11.6%
Number of holdings: 101

Invesco QQQM Overview

QQQM is another Nasdaq-100 ETF by Invesco. It has the same portfolio and strategy as QQQ but differs in expense ratio. QQQM charges 0.15% for expenses vs. 0.20% for QQQ. The lower expense ratio shrinks QQQM’s tracking difference and increases returns slightly relative to its sibling fund.

Why QQQM Is A Top Pick

QQQM isn’t as large or as liquid as QQQ, but the holdings are the same and the costs are lower. That positions QQQM as a better fit for the individual investor who doesn’t need to trade large blocks of shares.

Fidelity Nasdaq Composite Index ETF (ONEQ)

Date launched: December 4, 2003
One-year NAV return: 45.3%
Annualized NAV return since inception: 11.9%
Number of holdings: 1,021

Fidelity Nasdaq Composite Index ETF Overview

ONEQ tracks the larger Nasdaq Composite Index using a sampling approach. This means the fund invests in a smaller group of stocks with the goal of mimicking the index’s investment profile.

For larger indexes like the Nasdaq Composite, sampling can be more cost-efficient than full replication. The downside is that if the sampling strategy isn’t effective, a large tracking difference may result.

In 2023, ONEQ outperformed its index, producing a NAV return of 45.3% while the index grew 44.6%.

Why ONEQ Is A Top Pick

ONEQ has more than 1,000 holdings, while the other five funds featured here have about 100. The broader portfolio provides exposure to mega-caps, which have driven much of the performance in recent years, as well as mid-, small- and microcaps.

Tech stocks make up 49% of ONEQ’s portfolio. That probably sounds high, but it is more moderate than the underlying index which is nearly 60% tech stocks.

Invesco ESG Nasdaq 100 ETF (QQMG)

getty

Date launched: October 27, 2021
One-year NAV return: 55.3%
Annualized NAV return since inception: 5.6%
Number of holdings: 94

Invesco ESG Nasdaq 100 ETF Overview

QQMG tracks the Nasdaq-100 ESG Index. The index starts with the Nasdaq-100 and screens out companies that are involved in unsavory industries such as weapons or gambling. The index also excludes companies that are not compliant with the United Nations Global Compact principles and/or don’t meet minimum ESG risk rating scores.

Why QQMG Is A Top Pick

ESG investors review how companies manage environmental, social and governance risks as part of their investing process. The rationale is that addressing these risks proactively contributes to business health, sustainability and competitive advantage.

QQMG gives ESG investors an easy path to Nasdaq exposure that aligns with their investment process and values. In terms of performance, QQMG and its index slightly outpaced the standard Nasdaq-100 and related funds in 2023 and 2022.

Direxion Nasdaq-100 Equal Weighted Index Shares (QQQE)

Date launched: March 21, 2012
One-year NAV return: 22.8%
Annualized NAV return since inception: 14.3%
Number of holdings: 100

Direxion Nasdaq-100 Equal Weighted Index Shares Overview

The QQQE portfolio tracks the Nasdaq-100 Equal Weighted Index. The fund holds all Nasdaq-100 stocks, with each comprising 1% of the portfolio at rebalancing. Rebalancing happens quarterly to adjust for market fluctuations.

Why QQQE Is A Top Pick

Equally weighting the top Nasdaq stocks has the effect of reducing exposure to the technology and communications services sectors. It also reduces concentration in Apple, Microsoft, Amazon and others.

In the last 12 months, QQQE has underperformed the market-cap-weighted funds like QQQ, thanks to the strength of big tech stocks Nvidia (NVDA), Amazon, Alphabet (GOOG) and the like.

That trade-off may be worth it for some investors. The big advantage is more balanced exposure, which limits concentrations in popular stocks that are prone to overvaluation. Equal weighting of these holdings also provides more opportunity to benefit from smaller Nasdaq companies that can grow quickly.

Invesco Nasdaq Next Gen 100 ETF (QQQJ)

getty

Date launched: October 13, 2020
One-year NAV return: 13.6%
Annualized NAV return since inception: 1.0%
Number of holdings: 100

Invesco Nasdaq Next Gen 100 ETF Overview

QQQJ tracks the Nasdaq Next Generation 100 index, which is primarily mid-caps. Names you might recognize from this list include Super Micro Computer (SMCI), Ultra Beauty (ULTA) and eBay (EBAY).

Why QQQJ Is A Top Pick

QQQJ is an interesting pick because it’s a diversified portfolio of up-and-coming growth stocks. Many of these companies are innovators that could potentially grow into the Nasdaq-100. Invesco reports that 39 of current Nasdaq-100 stocks were formerly in this “next generation” group.

Mid-caps are also a nice complement to core large-cap holdings.

Stop chasing shadows in the market. Forbes’ expert analysts have pinpointed the 12 superstars poised to ignite returns in 2024. Don’t miss out—download 12 Best Stocks To Buy For 2024 and claim your front-row seat to the coming boom.

Strategies For Maximizing ETF Returns

Before you place a buy order on any of these Nasdaq ETFs, make sure you have the right plan in place. Follow the four strategies below to keep your expectations in check and your wealth protected.

1. Invest For The Long Term

The Nasdaq, and the entire stock market, enjoyed strong growth in 2023. Unfortunately, that means nothing with respect to 2024 or 2025. The growth could continue, or things could go the other way.

For that reason, it’s smart to invest with the intention of waiting 10 years or more before liquidating. Financial markets and economies move up and down in cycles. A 10-year holding period increases your chances of benefitting from the upswings more than you get punished from the downswings.

2. Research

While Nasdaq index funds require less monitoring and management than individual stocks, you should always know where you’re putting your money. Research your fund options carefully and choose only the ETFs that make sense.

As an example, if you’re conservative-minded but still want Nasdaq exposure, QQQ may be the best choice. The portfolio includes only the largest, most established Nasdaq companies. Plus, the fund is so heavily traded that any shares you own will be easy to sell.

3. Diversify

Nasdaq funds are somewhat diversified, but you could lose the benefit of that diversification by holding more than one. You don’t need two Nasdaq-100 funds, for example, or a Nasdaq-100 fund alongside a Nasdaq Composite fund. You could pair a Nasdaq-100 ESG fund with a Nasdaq Next Generation fund, however.

Note, too, that most Nasdaq-100 companies are also in the S&P 500. So you may want to check for concentration risk that can arise through exposure to the same stocks via different funds.

4. Opt for low expense ratios

If you have a choice between two similar funds with different expense ratios, opt for the lower-cost fund. Lower expenses contribute to results that are closer to the benchmark index, which is what you want. Higher expenses divert more of your capital away from the assets, which depresses returns over time.

Bottom Line

Nasdaq ETFs provide a simple way to invest in a diversified portfolio of Nasdaq stocks. You can tailor your exposure to suit your investing goals, whether that involves owning the top Nasdaq companies, the entire exchange or something in between.

Whatever route you take, be prepared for volatility. Nasdaq stocks, especially the top 100 of them, can deliver incredible returns—but you may have to endure some big downswings along the way.