Equal-Weighting The Nasdaq-100
Alternatively, two equal-eight Nasdaq ETFs, including the $528 million First Trust Nasdaq-100 Equal Weighted Index Fund (QQEW | B-53) and the $30 million Direxion Nasdaq-100 Equal Weighted Index Shares ETF (QQQE | C-54) allocate equally to smaller companies and, comparing performances, the equal-weight methodology has been outperforming the market-cap methodology.
Equal weighting tilts a portfolio to smaller higher-beta companies, which typically means quicker moves higher in rising markets and quicker moves downward when markets turn bearish.
Both equal-weighted ETFs’ current top three holdings include Tesla Motors; the biotech concern Illumina Inc.; and the coffee maker Keurig Green Mountain. QQEW is up 4.6 percent year-to-date after returning 39.9 percent last year, and has an annual expense ratio of 0.60 percent, or $60 for every $10,000 invested.
QQQE is cheaper than the more established QQEW, charging 0.35 percent, or $35 for every $10,000 invested per year, and is also outperforming QQQ, up 4.8 percent year-to-date after returning 43.2 percent last year. But the fund currently has a high closure risk because of its low assets, according to an ETF.com analyst report.
Another equal-weighted ETF, the $97 million First Trust Nasdaq-100 Ex-Technology Sector Index Fund (QQXT | B-47), also has exposure to Tesla, Illumina and Keurig, and is up 4.1 percent year-to-date after returning 41.6 percent last year.
However, Rosenbluth noted that if the overall market experiences volatility and has more modest growth in 2014—which his firm is expecting—then large-cap stocks will perform better than small and midcaps because of the relative stability of larger companies compared with riskier smaller counterparts.