Why I Own: EQQQ

[This article was first published in the Spring 2015 edition of ETF Report UK, our quarterly magazine for UK-based financial advisers. To read the full issue click here]

Evrin Erdem, head of investment at Copia Capital Management, talks about why her firm invests in the PowerShares EQQQ Nasdaq-100 UCITS ETF.

ETF.com: When did you start using the PowerShares EQQQ Nasdaq-100 UCITS ETF?

Erdem: We bought it at the beginning of November 2013, so we’ve held it since we launched the firm.

ETF.com: Why did you choose EQQQ?

Erdem: The Nasdaq-100 is a very good market to get exposure to, in that companies are both blue chip and growing. The US is also in a very good position. The S&P 500 Index did brilliantly last year, but the Nasdaq-100 did even better. In 2014, the Nasdaq-100 delivered 28%, whereas an S&P 500 tracker produced 24% in sterling. And since we bought EQQQ in November 2013, it has made 33% returns, versus the S&P 500’s 27%.

In terms of currency, with the USD strengthening against GBP, investing in ETFs that track an index based in USD added extra performance for the GBP-based investor, which was the case in the second half of 2014.

ETF.com: What are the attractions of EQQQ?

Erdem: We wanted to get exposure to the Nasdaq-100 in our multi-asset portfolios, and the fund is a good vehicle to get exposure to that index: It’s liquid, it has a large number of assets under management, and its bid/offer spread is very low, around 10 basis points—if that.

This ETF costs 0.30% per year, so that’s not the price of a smart beta product.

It’s true [that there are concerns around US technology stocks being overvalued] but these positions will take a while to unwind. The US economic data is doing well—it’s one of the best-performing countries in the world. All eyes are on the Fed and what it will do next, but we aren’t expecting an imminent crash.

ETF.com: How do you use EQQQ?

Erdem: For our 10 risk-rated, multi-asset portfolios, we hold EQQQ in every portfolio from the fourth on—and even in the third portfolio a little bit—in increasing amounts, up to 15%.

We reconsider what we’re holding every two months, so it’s not like we buy and hold a fund indefinitely.

ETF.com: Do you find that EQQQ is weighted too heavily in any particular area?

Erdem: The index is heavy on technology. It has all the household names like Microsoft, Apple, eBay and Amazon, which are growing blue chip stocks. EQQQ tracks a modified market cap index, so if one stock exceeds 24%, everything is scaled down to a weight of 20% and distributed towards the smaller stocks.

This ETF excludes financial stocks, but we do have exposure to that sector and we hold an S&P 500 tracker too. Ultimately, we didn’t choose EQQQ to avoid financials.

ETF.com: What else would you use to replace EQQQ?

Erdem: Amundi and Lyxor both have ETFs tracking this index, but since they’re synthetic, we didn’t consider them.

iShares has a Nasdaq-100 tracker, which is just plain-vanilla exposure, and it’s 10% more expensive than EQQQ, with annual costs of 0.33%. But these are small numbers anyway. Its AUM is smaller, and it reinvests dividends, rather than paying them to investors.

Risk warning
With investment comes risk. The price and value of investments mentioned and income arising from them may fluctuate and you may get back less than you invest. A movement in exchange rates may have a separate effect, unfavourable or favourable, on the gain or loss otherwise experienced on the investment concerned. Past performance is not a reliable indicator of future performance.