This article is the second in a series exploring equal-weight ETFs.
The market uncertainty and volatility can cause concern among investors, but they may want to turn to equal-weight exchange-traded funds (ETFs).
The benefit of an equal-weighted ETF, such as First Trust Nasdaq-100 Equal Weighted Index Fund (NASDAQGM: QQEW), is that it acts as a bit of a buffer against a market downturn in any one sector. Unlike a market-cap weighted ETF, wherein a specific sector or company can make up much of the fund, the companies and sectors that comprise an equal-weighted ETF such as QQEW are all favored equally, with no bearing on their market capitalization or size.
As an equal-weighted fund, QQEW may be of interest to investors looking to diversify into non-financial sectors. This fund provides equal-weighted exposure to the Nasdaq 100, which is a tech-focused index comprised of 100 of the largest domestic and international non-financial companies listed on the Nasdaq, based on market capitalization.
This fund is rebalanced quarterly to help provide equal allocation to all its components without any sector or market-capitalization favoritism. QQEW’s equal-weighted approach helps to mitigate some of the impact from the Nasdaq 100’s heavy-tech weighting. However, the index’s top holdings are led by two technology giants, Apple Inc. (NASDAQ: AAPL) and Microsoft Corp. (NASDAQ: MSFT), followed by global retailer Amazon.com Inc. (NASDAQ: AMZN).
QQEW has an expense ratio of 0.58%, a 0.12% distribution yield and $1.35 billion in assets under management. Further, it pays a quarterly dividend of $0.15. As the fund is an amalgamation of various sectors, all of equal weight, it is not surprising that it is a reflection of 2020’s market turmoil.
However, by early November 2020, it saw a sharp spike and continued to climb through February 2021. It hit a bit of a bump in March but has remained solid overall since then. Currently, the fund is trading at the higher end of its 52-week range of $83.94 to $117.83 and opened this morning at $112.51.
Chart courtesy of Stockcharts.com
The fund’s top five holdings include Trip.com Group Ltd. Sponsored ADR (NASDAQ:TCOM), 1.09%, Marriott International, Inc. Class A (NASDAQ:MAR), 1.09%, Seagen, Inc. (NASDAQ:SGEN), 1.08%, Booking Holdings Inc. (NASDAQ:BKNG), 1.07% and NetEase, Inc. Sponsored ADR (NASDAQ:NTES), 1.06%. The fund’s equal weighting causes these holdings to differ from those of the NASDAQ 100.
Overall, the Trust Nasdaq-100 Equal Weighted Index Fund (NASDAQGM: QQEW) may be a reasonable modification to the Nasdaq 100 for investors interested in a purer exposure to the non-financial sectors with less concentration in technology. It may also be of interest for investors looking to build a long-term or retirement portfolio, as opposed to traders interested in quick liquidity.
However, this equal-weighted ETF may not be appropriate for all portfolios, and investors are encouraged to conduct their own due diligence to determine whether this fund aligns with their investing goals.
