This could prove to be a good time to invest in the Betashares Nasdaq 100 ETF (ASX: NDQ).
It has been a rough period since the start of 2022. The NDQ exchange traded fund (ETF) has dropped by around 25% in that time.
But, an ETF's performance simply reflects the movements of its underlying holdings.
The Betashares Nasdaq 100 ETF tracks the performance of the NASDAQ 100 Index, which is made up of 100 of the largest non-financial businesses listed on the NASDAQ.
The provider of the ETF, BetaShares, notes that many of the companies in this portfolio are at the forefront of the 'new economy'.
What are some of the names in the portfolio?
At 15 July 2022, these were the biggest positions: Apple, Microsoft, Alphabet, Amazon.com, Tesla, Meta Platforms, Nvidia, PepsiCo, and Costco.
As readers may recognise, these are some of the leading businesses in the world at what they do. It can be hard to dislodge a business when it has such a strong competitive position.
Think how many tens of billions of dollars a business might need to spend just to have a chance of competing with Apple's iPhone or Alphabet's Google.
For me, it's the quality nature of the underlying businesses that makes the Betashares Nasdaq 100 ETF so attractive to me. Just look at the returns of the NDQ ETF over the five years to 30 June 2022. It achieved an average return per annum of 18.2% despite the recent decline.
Valuation change
The collective group of businesses in the NASDAQ 100 has dropped by around 25% in valuation amid worries about inflation and interest rate changes.
As an investor, I want to invest in good businesses at good prices. Being able to buy all these great businesses at a price that's 25% cheaper than 2021 looks good to me.
According to BetaShares, at 30 June 2022, the forward price/earnings (p/e) ratio was just under 20 at 30 June 2022. While this isn't exactly low, I think it's a worthwhile price to pay considering the long-term growth potential for plenty of the underlying businesses.
Useful diversification for a reasonable price
There are more than just the major holdings in the portfolio. Names like Adobe, PayPal, Cisco Systems, Qualcomm, Intuitive Surgical, Booking, and ASML each have a compelling case to make.
The NDQ ETF can provide diversification for investors who are largely invested in ASX shares, with the S&P/ASX 200 Index (ASX: XJO) being dominated by financial shares and resource shares. The NASDAQ 100 is largely about tech shares, with a 50% weighting to IT.
It's worth bearing in mind that some of the names that readers may think are 'technology' are actually classified as something else. For example, Tesla and Amazon are counted as consumer discretionary businesses, while Alphabet and Meta Platforms are classified as communication services.
The annual management fee is 0.48%.
