The exchange-traded fund (ETF) Betashares Nasdaq 100 ETF (ASX: NDQ) has a lot of potential, in my opinion. While it has risen a lot, I still think it has plenty more to go over the long term.
This fund provides investors with exposure to 100 of the largest non-financial businesses on the NASDAQ-100 Index (NASDAQ: NDX), a US stock exchange.
It gives investors exposure to stocks like Nvidia, Microsoft, Apple, Amazon, Meta Platforms, and Alphabet.
The fund has delivered big returns over the last ten years, but I'm optimistic that this investment can deliver further exciting results. Here are a few key reasons.
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Significant investments in research and development
Businesses in the NDQ ETF are regularly among the world's biggest spenders on research and development (R&D), which I think is key for updating their existing offerings and creating new products and services.
According to Betashares, compared to the S&P 500 Index (SP: .INX), Nasdaq-100 companies spend around 1.4x more on research and development on a weighted average basis ($15.2 billion compared to $11.2 billion in 2023).
Businesses in the Nasdaq-100 are also significantly responsible for patent valuation growth and patent filings. Without them, patent valuation growth in the US would closely resemble the rest of the world, according to BetaShares.
I think this is a key factor that could help the NDQ ETF businesses deliver satisfactory revenue and earnings growth in the coming years.
Strong businesses
The companies in this portfolio are some of the world's best at what they do in various areas such as smartphones, cloud computing, artificial intelligence, online advertising, online video, e-commerce, etc.
The stocks in the NDQ ETF portfolio usually rank well on investor metrics like return on equity (ROE), earnings stability, cash flow, debt levels, and so on.
Not only do they have great products and services, but they also have some of the best financial statistics. Collectively, those financial elements usually make it easier for the business to grow profit in the future.
Useful diversification
Investors shouldn't just think of this fund as a software investment fund, though it has a significant weight in tech and tech-related companies.
These days, software seems to be an important aspect in virtually every sector. I think it's a good thing the fund provides significant exposure to tech because of the growth outlook and profit margins that the sector can deliver.
But, there are impressive businesses in the portfolio, including robotic surgery business Intuitive Surgical, supermarket and warehouse retailer Costco, and food and drink business PepsiCo.
Another aspect of the diversification is how the NDQ ETF companies are typically global businesses, so their earnings are generated from across the world, not just the US.
Overall, there's a lot to like about this fund, and it justifies my expectation of solid future returns.
