2020 was an explosive year for markets across the board, and the stock markets were not left behind. As expected, when stock markets generate good returns, ETFs swell in sympathy. The year 2021 was (and still is) all set to be a good one.
The more nuanced news is that not all ETFs outperform or even match the market, so we’ve created this guide to the best ETFs for 2021. Specifically, we have searched for Nasdaq ETFs that follow the USA’s tech-heavy index of stocks. Tech was big in 2020, and into 2021, due to the coronavirus pandemic that forced more of us to spend more time indoors at home.
Where Can I Trade Nasdaq ETFs?
Several online brokers provide Nasdaq ETFs on their trading platforms. Choose a broker that has low fees, a user-friendly trading platform, and regulatory approval from the appropriate authorities. We have found some of the best brokers for you.
What is a Nasdaq ETF?
To participate in the stock markets, you typically have to purchase shares of a particular stock. However, it’s not a good idea to have all your money invested in a single stock (or just a few) that could go bust.
What if you could invest in a group of carefully selected stocks just as easily as investing in a single stock? This is what an exchange-traded fund (ETF) lets you do. An ETF is an investment product that tracks a collection of securities (commodities, stocks) but is listed on an exchange as a single asset with a price. This price goes up or goes down based on the movements of the stocks tracked by the ETF.
A fund manager or some other trusted financial company will create an ETF based on a particular investment theme, industry, or stock index. A Nasdaq ETF tracks the stocks listed on the Nasdaq exchange.
The Nasdaq Composite Index is one of the largest stock exchanges in the world, featuring over 2,500 company stocks. What is unique about the Nasdaq is that tech companies heavily influence it, and it is the traditional listing place for a lot of tech companies such as Facebook (FB), PayPal (PYPL), and Apple (AAPL).
Invest in a Nasdaq ETF in 3 Steps
Open Your Online Trading Account
The first step is for you to open your account for trading with a credible broker. Almost all brokers now allow account opening through their websites. You just have to enter the required details that usually include your name, address, email, phone number, and — in some cases — your government-issued ID or social security number.
Choose the Nasdaq ETF you wish to trade
The next step is that you select the Nasdaq ETF of your choice, from the several available. Pay attention to both fundamental factors (the financial health of the included companies) and technical factors (e.g., the price chart for the Nasdaq-100 index or the specific ETF).
Place Your Trade
Now it’s time to place your trade via the broker’s website or mobile app. Some online brokers allow you to leverage your trade by borrowing money to make a bigger stake size. Be careful not to take any risk that you can’t afford to lose, and consider applying a stop order to your trade to get you out if any loss gets too big.
Best Nasdaq ETFs to Buy Now
Here are the best Nasdaq ETFs to buy in 2021:
- Invesco QQQ
- First Trust Nasdaq-100
- Invesco Nasdaq Next Gen 100 ETF
- ProShares Leveraged Nasdaq-100 ETFs
- ProShares Inverse Nasdaq-100 ETFs
- Simplify Growth Equity PLUS Convexity ETF
- Simplify Growth Equity PLUS Downside Convexity ETF
- ProShares Ultra Nasdaq Cloud Computing
- Innovator Nasdaq-100 Power Buffer ETF
- VictoryShares Nasdaq Next 50 ETF
1. Invesco QQQ
The Invesco Nasdaq 100 ETF, popularly referred to as the QQQ, is the oldest and most popular ETF that tracks companies listed on the Nasdaq. It tracks the Nasdaq 100 index comprising the 100 largest non-financial companies listed on the exchange based on market capitalization, so it’s more influenced by stocks such as Apple (with a market cap of $2.1 trillion) than by PayPal (with a $290 billion market cap).
2. First Trust Nasdaq-100 Equal Weighted Index Fund
Just like the QQQ, the First Trust ETF allows investors to track the Nasdaq 100 index. But unlike the QQQ, the First Trust is equally weighted, so all the constituent stocks have an equal effect on the ETF. It means your investment should be less affected if a few big stocks experience downturns.
3. Invesco Nasdaq Next Gen 100 ETF
Although still relatively new, the Next Gen 100 ETF is interesting. Rather than invest in the 100 largest stocks on the exchange, it invests in the next 100 largest stocks. The premise behind this is to invest in growth companies that have the potential to become extremely big. Although it is cap-weighted like the QQQ, it is a bit more diversified, and the index includes tech companies (almost 50% of assets) along with healthcare and industrials. The constituent companies include AstraZeneca (AZN), Discovery Inc (DISCA), DraftKings (DKNG), and Beyond Meat (BYND).
4. ProShares Leveraged Nasdaq-100 ETFs
The ProShares Leveraged Nasdaq-100 ETFs (two of them) offer leveraged exposure to the Nasdaq 100, which means your gains — and losses, so be careful — are amplified by 2x or 3x. This allows you as an investor to achieve something that only CFD traders usually can. Beware, thoiugh, that returns from leveraged ETFs are not necessarily as predictable as the “2x” and “3x” labels suggest if you hold them for longer than a day.
5. ProShares Inverse Nasdaq-100 ETFs
The ProShares Inverse Nasdaq-100 ETFs (three pf them) also offer leveraged exposure to the Nasdaq 100. Not only leveraged, but inverse, which means you’re betting against the Nasdaq when you buy one of these ETFs. So, you can do two thinks that an investor can’t usually do: amplify your gains (through leverage) and “go short” (thanks to the inverse nature). This sounds good in theory if you think the Nasdaq index will fall, but the returns from inverse leveraged ETFs are not as predictable as they imply if you hold them for longer than a day.
Expert Tips on Investing in Nasdaq ETFs“ A few things to consider to increase your chances of success when investing in Nasdaq ETFs are: understand the ETF composition, research each trade, stay abreast of economic events, and consider using advanced order types (limit orders and stop orders) to ensure you don’t pay too much or lose too much. ”- Mir Kamrul
Why trade Nasdaq ETFs?
The Nasdaq exposes you to the technology sector more than any other stock exchange. We have all seen how technology is revolutionizing how we live by transforming industries from transport (electric and driverless vehicles) to healthcare (biotech). And it goes without saying how much the tech sector benefited from the coronavirus pandemic lockdowns. The Nasdaq offers an opportunity to participate in and benefit from the ongoing tech revolution.
Frequently Asked Questions
There are differences between ETFs and mutual funds. A Nasdaq ETF simply aims to track the stocks traded on the Nasdaq exchange whereas mutual funds tend to be actively managed by a portfolio manager. Mutual funds can only be bought or sold once per day whereas ETFs can be traded at any time during the trading day.
Nasdaq ETFs are available for all classes of investors. Beginners are strongly advised to avoid certain types of ETFs; namely “inverse” and “leveraged” ETFs.
This depends on when you ask the question. Up to May 2020, markets including the Nasdaq enjoyed a multi-year bull run punctuated by a surprisingly minor blip in March 2020 caused by COVID-19. Before you invest, check that the Nasdaq is still bullish rather than reversing into a bear market.
Beginner investors and traders should avoid leveraged products that amplify losses as well as gains. Leveraged ETFs are particularly problematic if held for longer than a day, thus making them most suitable for day traders.
ETFs essentially follow the movements of the stocks they track, according to the weighting of each stock within the ETF. Some ETFs are cap-weighted rather than equal-weighted, thus influenced most by the biggest stocks.
This depends on you and your investing goals. An ETF typically does not have an expiry or maturity date, and you could potentially hold one indefinitely. But if trading special ETFs like inverse and leveraged ones, the ideal holding periods are usually very brief and can be as short as a single day.