The Betashares Nasdaq 100 ETF (ASX: NDQ) has done very well for investors since the beginning of the year, rising by 20%.
This has been a much stronger performance than the S&P/ASX 200 Index (ASX: XJO) which has only risen by 5.4% in the same time period.
When something goes up so strongly in such a short amount of time, it'd be understandable to question whether it's still good value.
But, I think it's worth saying that an investment can go up in price and be cheap, or perhaps go down in price and be expensive.
Let's remind ourselves that the Betashares Nasdaq 100 ETF is invested in 100 of the biggest businesses on the NASDAQ stock exchange, one of the main exchanges in North America.
Investors have probably heard of many of the biggest holdings within the exchange-traded fund (ETF) including Microsoft, Apple, Amazon.com, Alphabet (Google), Nvidia and Meta Platforms (Facebook).
Many of those names sank in 2022 as interest rates shot higher, hurting technology valuations in particular.
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Why do interest rates (and inflation) matter?
Central banks around the world, including the Reserve Bank of Australia (RBA) and the US Federal Reserve, are trying to get in control of inflation. The tool the central banks are using to do this is interest rates.
Interest rates can have a huge impact on investment valuations. Warren Buffett once said:
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.
The technology businesses have plenty of growth factored into their share prices, so it's understandable why they were hurt.
But, inflation may have peaked in the US, with inflation now only 5%. But, this may still be too high for the Federal Reserve.
Is this a good time to invest in the Betashares Nasdaq 100 ETF?
It clearly would have been a better time to invest in December 2022 at a lower price.
But, on a conventional metric like a price/earnings (P/E) ratio, it's certainly not cheap. According to BetaShares, the ETF had a forward P/E ratio of 23 times in February 2023.
Plenty of the businesses that it's invested in are among the world leaders at what they do, such as Apple, Alphabet, Microsoft, Costco, Intuitive Surgical and ASML.
I believe this group of businesses can continue to perform well as they re-invest in their operations, strengthen existing services and launch new products. Many of these businesses are working with a global addressable market, which gives them plenty of room to grow.
While it's not the cheapest time to invest, I think this ETF has a positive future ahead, so I'd be willing to invest at the current price.
