If an investor is looking at ETFs as potential investments, an important question to ask is “what characteristics does a good ETF have?“.
There are multiple factors to consider and in particular there are three factors I look at first when assessing an ETF. I believe that NDQ has a balance in all three of these areas.
Diversification and underlying holdings
One of the biggest draw cards for ETFs is the instant diversification in one low cost investment. Each ETF targets a different area with its underlying holdings and usually tracks a different index, it’s important to know what the investment is made up by.
NDQ ETF tracks the NASDAQ-100 Index. This index is the 100 largest non-financial companies listed on the NASDAQ market in the US. It is heavily weighted towards technology stocks with 49.4% of this ETF being made up by the technology sector.
This ETF is made up by some of the largest global household names with Apple (11.3%), Microsoft (10.1%), Alphabet (8.1%), Amazon (7.8%) and Facebook (4%) being its five biggest holdings.
Low fees are are an top priority when considering any investment. Fees and costs associated with investing make a costly impact on the potential returns if the fees are high. Compounding is an investor’s friend for returns, but an enemy if its compounded fees.
NDQ ETF has an annual management fee of 0.48%. This means that if $5,000 was invested for one year the fee would be $24. This is not as cheap as some other ETFs like the very low fee of 0.03% from Vanguard U.S Total Market Shares Index ETF (ASX: VTS).
However the NDQ fee is still reasonably low, most fund managers charge at least 1% in annual fees.
Returns are the whole point, right? While it is not possible to accurately predict future returns, we can look at past returns to get an idea on how it has performed in recent times.
This index has had some impressive returns in the past five years with an average of 27.89%. When looking at the past year it has returned 30.37%.
It’s important to keep in mind that this does not represent future returns, however these were some tasty returns for investors who got to experience them.
In terms of the dividend yield, BetaShares says it has/had a 3.5% yield. This is higher than one might have expected and is probably down to the fact that it has to rebalance the holdings regularly and distribute the capital gains to ETF holders.
So is NDQ a good investment?
I think that it is a solid choice for investors looking for US exposure, particularly in the technology sector.
It provides exposure to quality businesses with quality earnings, impressive historic returns and reasonable fees.