The Betashares Nasdaq 100 ETF (ASX: NDQ) has been an excellent investment in the short-term and the long-term. With further potential rate cuts in the US, investors should consider whether this is a good time to buy (or not).
As a reminder, the NDQ ETF allows investors to invest in 100 of the largest businesses listed on the NASDAQ. It's quite a tech-heavy fund because many of the world's biggest tech businesses are listed on the NASDAQ.
Share prices of the US giants have delivered strong gains in the last couple of years as investors anticipated rate cuts, which did eventually come. But, there could be further rate cuts on the cards following comments by US Federal Chair Jerome Powell.
According to reporting by CNBC, the employment numbers have rapidly cooled, leading to Powell to comment that the risk between high inflation and high unemployment is "shifting". This means the Federal Reserve may change its focus to support employment rather than taming inflation, leading to rate cuts.
Chairman Powell said:
The shifting balance of risks may warrant adjusting our policy stance.
Rate cuts could be good news for shareholders because it could increase the valuations of businesses even more.
Why do rate cuts matter?
As one of the world's greatest investors, 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.
Therefore, when rate cuts occur, it makes assets more valuable, at least in theory. That sounds like good news for the NDQ ETF, in my view.
Is this a good time to buy the NDQ ETF?
The exchange-traded fund (ETF) not as cheap as it was a few months ago, a year ago or five years ago. It would have been better to buy earlier than today. However, I certainly don't think this will be the highest the Betashares Nasdaq 100 ETF unit price ever gets to.
There are many great businesses in the portfolio such as Microsoft, Alphabet, Amazon, Nvidia, Apple, Meta Platforms and Netflix. There are some less high-profile, high-quality names such as Costco and Intuitive Surgical too.
These businesses are typically the ones leading the way in their respective industries such as e-commerce, cloud computing, social networks, smartphones, AI, e-commerce and so on. I think they are likely to collectively to continue growing earnings at a solid pace for the foreseeable future.
So, despite the relatively high valuations, I think their share prices will be higher in five years and ten years, which is why I'd still describe this as a good time to invest in the NDQ ETF, even if there's volatility in the short-term.
