The Betashares Nasdaq 100 ETF (ASX: NDQ) is an interesting exchange-traded fund (ETF) investment consideration following the decision by the US Federal Reserve to pause raising interest rates.
Central banks around the world have been trying to bring inflation under control by increasing the cost of debt, which aims to reduce demand in the economy.
Over the past year, interest rates in the US have surged to the current target range of between 5% to 5.25%.
But, the US Federal Reserve decided to stop its consecutive monthly hikes this month, which could have an impact on the Betashares Nasdaq 100 ETF.
Why did the US Federal Reserve pause?
According to reporting by CNBC, Fed Chair Jerome Powell said after the latest update:
We have raised our policy interest rate by five percentage points, and we've continued to reduce our security holdings at a brisk pace. We've covered a lot of ground and the full effects of our tightening have yet to be felt.
The US Federal Reserve will be able to assess "additional information and its implications for monetary policy."
More than half of the US Federal Reserve's committee thinks that there will be at least two more rate hikes this year. Members also increased their forecasts for future years, with the Federal Reserve rate expected to be 4.6% in 2024 (up from a 4.3% prediction) and 3.4% in 2025 (up from a prediction of 3.1%). The last predictions were made in March.
So, the US central bank wants to see the effects of all of its interest rate rises, but interest rates could stay higher for longer than previously thought.
What does this mean for the Betashares Nasdaq 100 ETF? Warren Buffett once said 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.
Is this a good time to buy Betashares Nasdaq 100 ETF?
I think it's a good idea most of the time to buy the NDQ ETF because of how good the underlying businesses are in the portfolio including Apple, Microsoft, Alphabet, Amazon, Costco, Adobe, Starbucks and Intuitive Surgical.
The Betashares Nasdaq 100 ETF has gone up by 37% since the start of 2023, meaning it has significantly outperformed the S&P/ASX 200 Index (ASX: XJO) which has only risen by 3.3% this year.
Investors may be being overly optimistic about how much shares should rise considering interest rates are at a peak, much higher than they were last year. And interest rates are expected to stay much higher than pre-2022 times.
Even so, I believe it would be a big mistake to miss out on ownership of businesses achieving long-term growth.
The Betashares Nasdaq 100 ETF has done very well for investors, rising by over 19% per annum over the past five years. Though past performance is not a reliable indicator of future returns.
There could be some more volatility to come, particularly if inflation remains stubbornly high, and interest rates are higher than expected for longer.
I think this is a good time to invest in the NDQ ETF and get exposure to some of the strongest businesses in the world, though it's not as cheap as it was a few months ago.
