The Betashares Nasdaq 100 ETF (ASX: NDQ) is one of the most popular exchange-traded funds (ETFs) on the ASX, with $2.45 billion of investor money. But, has it performed well in this financial year?
Firstly, let me tell you what the ETF is about. It tracks the 100 largest non-financial companies on the NASDAQ.
The returns generated by an ETF are dictated by the returns of the underlying businesses (or assets) it's invested in.
For ETFs that are invested in companies in different countries that are priced in different currencies, changes in the exchange rate can impact short-term returns as well. I'll give a good example of that in a moment.
Betashares Nasdaq 100 ETF performance
In the three months to September 2022, the ETF saw its price decline by 0.15%. That compares to the S&P/ASX 200 Index (ASX: XJO), which declined by 1.4%.
For an Aussie investor, that's an outperformance of 1.25%.
However, I think it's worth pointing out that the actual Nasdaq-100 Index (INDEXNASDAQ: NDX) fell by 4.6% in US dollar terms. This means that for Aussie investors in the ETF, the decline of the Australian dollar against the US dollar helped offset the decline in value of the US shares, in Australian dollar terms.
There has been a lot of volatility for the biggest names on the NASDAQ as inflation and higher interest rates bite into the valuation of those largely tech and tech-related companies.
Apple, Microsoft, Alphabet, Amazon.com, Tesla, Meta Platforms and Nvidia are the biggest names in the portfolio and they have all seen big swings in their share prices in recent months.
What's happening in October?
September was the end of the first quarter of the Australian 2023 financial year.
But we're already a week into October.
Since the end of September, the Betashares Nasdaq 100 ETF has risen by 3.8% and the ASX 200 has gone up 4.7%. To provide the full picture, in US dollar terms, the Nasdaq-100 Index has risen 4.7% as well.
Why do interest rates matter so much?
Interest rates impact all sorts of things, such as mortgage rates, the cost of business debt and so on. But, it also hurts asset valuations. Legendary investor Warren Buffett once said this about interest rates:
The value of every business, the value of a farm, the value of an apartment house, the value of any economic asset, is 100% sensitive to interest rates because all you are doing in investing is transferring some money to somebody now in exchange for what you expect the stream of money to be, to come in over a period of time, and the higher interest rates are the less that present value is going to be. So every business by its nature… its intrinsic valuation is 100% sensitive to interest rates.
