The BetaShares NASDAQ 100 ETF (ASX: NDQ) is one of the most popular ASX ETFs with more than $1.5 billion in funds under management (FUM) and three-year returns exceeding 25% per year. Is it time to sell?
Is NDQ overvalued?
The NDQ ETF has been one of the top-performing ASX ETFs over the last five years, with high returns driven by the US tech mega-caps like Apple Inc (NASDAQ: APPL), Amazon.com Inc (NASDAQ: AMZN), Facebook Inc (NASDAQ: FB) and Alphabet Inc (NASDAQ: GOOG). Of course, the meteoric rise of the Tesla Inc (NASDAQ: TSLA) share price has also played a big part.
But, with the NDQ share price rising 22% per year over the last five years and 34% in the last 12 months, during a global pandemic, is it becoming overvalued?
This is a question that is hotly debated and hard to answer properly. On the one hand, the tech giants that dominate the NASDAQ (the top 10 holdings make up half the index) are trading at record valuations and multiples. At the same time, record-low interest rates have pushed more funds into equities and provided justification for increased valuations, and the mega-cap companies continue to grow at impressive double-digit growth rates.
I think the real question is whether or not it’s a sensible idea to bet against innovation. Many of the companies that make up the NASDAQ index are at the forefront of their respective fields and are driving new technology and industries. Innovative companies such as these can be extremely difficult to value because they’re in unchartered territory.
So, it comes down to probabilities. I certainly wouldn’t be comfortable putting all my money into NDQ and relying on the lofty valuations of the various tech giants, but I think there is a strong possibility that these companies will continue to dominate their industries and shape the way we live. I would be cautious about being overexposed to the NDQ ETF, but I believe it has a valuable place in a balanced and diversified portfolio.
