Tech-Utopia: The Best Nasdaq 100 ETFs for UK Investors (2024)

• Nasdaq 100 ETFs offer unparalleled exposure to high-growth U.S. tech giants like Apple, Microsoft, and Amazon.
• Over the past decade, the Nasdaq 100 has outperformed the S&P 500 by a huge margin.
• For UK investors, iShares Nasdaq 100 UCITS ETF and Invesco EQQQ Nasdaq 100 UCITS ETF are top choices.
• 42% of the Nasdaq 100 performance is made up of its top five holdings, introducing portfolio risk.

The Nasdaq 100 index is home to the world’s largest technology and internet companies that are driving innovation and transforming the way we live and work. Investing in Nasdaq 100 ETFs gives investors exposure to these disruptive innovators that are shaping the future. However, the index is super top-heavy, with most of the performance coming from just a handful of companies.

The Nasdaq 100 has vastly outperformed the S&P 500 over the past 10 years, with annualized returns of over 20% compared to just 13% for the S&P 500. This stellar growth has been powered by tech titans like Apple, Microsoft, Amazon, Meta, Alphabet, Tesla and Nvidia.

For UK investors looking to add high-growth US technology stocks to their portfolio, two popular Nasdaq 100 ETF options are the iShares Nasdaq 100 UCITS ETF (CNX1) and the Invesco EQQQ Nasdaq 100 UCITS ETF.

In this article, we’ll take a look under the hood of the Nasdaq 100 index itself, understand why it has achieved such impressive returns, and compare the key features, costs and historical performance of the CNX1 and EQQQ ETFs.

Nasdaq 100 vs S&P 500

The S&P 500 is arguably the most well-known stock index, comprised of the 500 largest US companies. It is commonly used as a benchmark for the overall US stock market.

Meanwhile, the Nasdaq 100 represents the 100 biggest non-financial stocks on the Nasdaq exchange.

While there is some overlap in the major technology stocks, there are some key differences:

• The Nasdaq 100 is more concentrated in technology and internet stocks, whereas the S&P 500 covers all major sectors of the economy.
• The Nasdaq 100 contains more mid-cap growth stocks with high valuation ratios, compared to the S&P 500 which tilts towards large-cap value stocks.
• The Nasdaq has greater volatility. In 2022, the Nasdaq 100 was down 33% versus a decline of 19% for the S&P 500.
• Over the past 10 years, the Nasdaq 100 has dramatically outperformed with annualized returns of 20% compared to 13% for the S&P 500.

So the Nasdaq 100 is dominated by technology and consumer services firms, with minimal exposure to other sectors. Top holdings include Apple, Microsoft, Amazon, Alphabet (Google), Meta (Facebook), Tesla, Nvidia and PayPal.

In fact, the top five companies currently make up more than 43% of the index:

• Microsoft: 12.67%
• Apple: 12.04%
• Nvidia: 7.36%
• Amazon: 6.88%
• Meta Platforms: 4.49%

This means that the performance of the Nasdaq 100 relies heavily on the continued growth of a handful of tech and internet giants. While this has paid off handsomely over the past decade, it introduces portfolio risk should any of these heavyweights falter. For a more diversified exposure to the US market, one that is still dominated by technology shares, .

Why Invest in a Nasdaq 100 ETF?

For investors who want exposure beyond a broad global equity ETF, a Nasdaq 100 ETF can be an attractive satellite holding. The core-satellite approach involves building a portfolio around a core of diversified, low-cost index funds, while adding more targeted satellite investments around the edges.

The Nasdaq 100 has massively outstripped the S&P 500 and MSCI World over the past decade. For investors bullish on the continued dominance of US technology giants, a Nasdaq 100 ETF provides a means of overweighting this sector compared to a standard global equity ETF.

Overweighting simply means allocating more to an asset class than it represents in the global market cap (the total value of all stocks). For example, US stocks make up about 60% of the world’s market cap. By allocating 80% or more of your portfolio to US stocks, you would be overweighting that region compared to a market-cap-weighted portfolio.

Similarly, technology makes up around 20% of the value of global stocks. An allocation of 30-40% through a Nasdaq 100 ETF overweights this sector compared to a global market-cap-weighted approach.

Both ETFs are excellent choices for Nasdaq 100 exposure at minimal cost. EQQQ has a slight edge on fees but CNX1 is still competitively priced. Performance is virtually identical.

EQQQ vs QQQ

The codes that differentiate versions of the same ETFs can be very confusing.

EQQQ and QQQ hold the same Nasdaq 100 stocks in the same proportions. The only differences are that EQQQ trades on European exchanges, is priced in Euros or Pounds, and distributes dividends to UK and European investors in a tax-efficient manner. For UK investors, EQQQ is likely the better choice over QQQ.

EQQQ vs EQGB

EQGB is a version of the Invesco EQQQ Nasdaq 100 UCITS ETF that is hedged to the British Pound. It is generally not recommended that you hedge your global equity investments for the following reasons:

• Diversification: Equities offer growth potential and are a hedge against inflation. Part of that diversification benefit comes from exposure to different currencies.
• Long-Term View: Over the long term, currency fluctuations tend to even out. The short-term volatility introduced by currency risk is often less relevant for long-term equity investors.
• Costs: Hedging isn’t free. The costs can eat into the higher returns generally expected from equities. EQGB is more expensive than EQQQ.
• Missed Upside: If the foreign currency appreciates, you miss out on those gains when you hedge.
• Global Exposure: Many large companies operate globally, and their stock prices may already factor in some level of currency risk.

EQQQ vs EQAC

Again, both are different versions of the Invesco EQQQ Nasdaq 100 UCITS ETF. EQQQ is a distributing ETF, which means it pays out dividends to investors. EQAC is an accumulating ETF, reinvesting the dividends on your behalf.

Is there a Vanguard Nasdaq 100 ETF?

Unfortunately no. The Vanguard Information Technology Index Fund ETF (VGT) is listed in the US but there is no UK equivalent.

Conclusion

If you’re bullish on tech and want to overweight this sector in your portfolio, a Nasdaq 100 ETF is a potent tool to consider. Just be aware of the risks and nuances. The index is top-heavy, with giants like Microsoft, Apple, and Nvidia making up a significant portion of its value. This concentration introduces portfolio risk, making the index sensitive to the performance of a few key players.