Outperforming Nasdaq ETF Hits New Highs

April 24, 2015

A rally in technology stocks is again pushing the Nasdaq Composite through record highs not seen in 15 years, leaving other broad-market benchmarks such as the S&P 500 Index and the Dow Jones industrial average in the dust.

 

It would be a case of deja vu to see the index return to dot-com-era levels fueled by a hot tech sector, except for the fact that the composition of the index is very different today, and includes far less speculative names than it did then, according to the Wall Street Journal.

 

Consider the Nasdaq-100 as a good proxy for the Nasdaq Composite. The benchmark is essentially a subset of the Nasdaq Composite, but it typically accounts for more than 90 percent of the broader index’s performance.

 

The Nasdaq-100 represents the top 100 nonfinancial companies listed on the Nasdaq Stock Market, but the benchmark has long evolved from its heavy-tech focus over the years. Of its original constituents 30 years ago, only seven remain the same, including Apple, Intel and Costco. Today the index also includes top companies in health care, media, retail and industrials.

 

So far this year, the tech sector has been strong, delivering gains of about 3.5 percent, but health care has now rallied 9 percent, and consumer discretionary component is up more than 6 percent. These are all sectors the Nasdaq-100—and the Composite—also own.

 

In the ETF space, the Nasdaq-100’s footprint includes some $45 billion in ETF assets spread across a dozen exchange-traded products linked to it, the majority of which are tied to a single fund: the PowerShares QQQ Trust (QQQ | A-63).

 

QQQ has $39.5 billion in assets gathered since its debut in 1999, and year-to-date, it has delivered 7 percent in total returns—roughly twice the gains seen in the SPDR S&P 500 ETF (SPY | A-99). The SPDR Dow Jones Industrial Average Trust (DIA | A-83) is inching toward a 2 percent gain. 

 

Chart courtesy of StockCharts.com

 

“Over the years, there’s been a transformation in this index,” John Jacobs, executive vice president of Nasdaq OMX, recently told us. “It has gone from growth to large-cap growth, to large-cap growth with yield today. The index reflects the maturity of the growth companies in this country.” 

 

 

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