New ways the Nasdaq is diversifying Aussie portfolios


Over the last few years, ETFs have opened the world of investing in different parts of the market. One area that investors have gravitated towards is technology, as it becomes an increasingly important way to build long-term wealth.

For example, the US share market hit new highs in recent weeks, propelled by surging technology companies such as Microsoft, Alphabet, Amazon and Nvidia, which are all listed on the Nasdaq.

In addition to the so-called Magnificent Seven, other companies listed on the Nasdaq are enjoying huge earnings growth as they embrace AI and other technologies.

nasdaq etfs

The Nasdaq exchange has become the listing place of choice for the most innovative technology companies globally - including all of the members of the US' "Magnificent Seven"- due to its reputation.

Some notable examples of companies that have chosen the Nasdaq to list their businesses include Australia's own Atlassian, global semiconductor leader ASML based in the Netherlands, and Latin America's online marketplace giant, Mercado Libre.

For Australian investors, gaining exposure to these leading companies can be critical to improving portfolio diversification and adding growth potential.

The Australia equity market is largely made up of mature large capitalisation companies from cyclical industries.

Looking at the makeup of the S&P/ASX 200 over 50% of the index is in the financials and materials sectors with just 2% in technology stocks. While this has catered to Australian investors' preference for dividends, there is a trade off with exposures offering more growth potential.

By contrast the flagship Nasdaq 100 Index is made up of more than 50% technology companies, 15% communication services, and 13% in consumer discretionary - all sectors that are underrepresented in Australia.

Nasdaq's appeal to large innovative technology companies makes it a very compelling complement to Australian investors' portfolios to improve both diversification and growth.

While the ASX200 has returned on average 8% p.a. over the past 10 years the Nasdaq 100 Index (in Australian dollar terms) has returned on average 22% p.a.

For investors, it has never been easier to invest in different parts of the Nasdaq.

It's expected that investors will continue to gravitate to the flagship Nasdaq 100 index via the Nasdaq 100 ETF (ASX: NDQ) or its currency hedged equivalent (ASX: HNDQ).

However, investors now have more options to add exposure to other parts of the Nasdaq universe to diversify their portfolios.

For example, the quickly rising stars that comprise the 100 largest Nasdaq non-financial companies outside the Nasdaq-100 Index have the potential to become tomorrow's leaders.

Examples of leading companies that jumped graduated from the Nasdaq Next Generation 100 Index to the Nasdaq-100 include Tesla and Netflix. Investors can look to add exposure to this part of the Nasdaq index via the Betashares Nasdaq Next Gen 100 ETF (ASX: JNDQ).

Investors might look to use this exposure as a more satellite allocation of their portfolio, perhaps where an investor might look for growth.

Additionally, investors can now access the same 100 companies in the Nasdaq 100 index but weighted so that each company has the same weight on each rebalance.

This means instead of the largest companies having a bigger weight in the index each company in the 100 will represent approximately 1% of the portfolio.

Investors may be interested in this approach to further improve diversification across the breadth of innovative companies in the index and can access this exposure via the Betashares Nasdaq 100 Equal Weight ETF (ASX: QNDQ).

Overall, its important that investors look to build a well-rounded portfolio, of which the innovative companies associated with the Nasdaq can play a meaningful role.

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Thomas Wickenden is an investment strategist with Betashares. He holds a Bachelor of Commerce from the University of Sydney and has worked at Betashares since 2020.