iShares NASDAQ 100 Index ETF (XQQ) Review
On our journey to analyze some of the most popular exchange-traded funds (ETFs) in the investment world, we talked about BMO ETFs and Vanguard ETFs so far. However, this effort will not be complete without BlackRock iShares ETFs, which is the leading ETF manager in the world. To add some context to this claim, BlackRock boasts 389 different ETFs in the US market and 157 ETFs in Canada. These are more than its rival BMO and Vanguard ETF counts put together. In this article, we will be exploring the infamous iShares NASDAQ 100 Index ETF, ticker symbol; XQQ, listed in the Toronto Stock Exchange (TSX).
With over $2 trillion in assets under management and over 900 investment products, BlackRock is one of the leading players in the fund management game. This gives them the luxury of dropping their management fees and further attracting investors. In 2019, BlackRock entered into a strategic alliance with Canada’s RBC Global Asset Management to introduce the iShares brand for ETFs.
If you thought the S&P 500 Index has seen some amazing gains recently, you should really look at the NASDAQ 100 Index. This index tracks the performance of the 100 largest non-financial companies listed on the NASDAQ stock exchange in the United States. When you remove the financial companies from the S&P 500, you end up at NASDAQ 100. This means that NASDAQ 100 contains most of the biggest tech companies in the United States and we all know that the technology sector has been on a high-growth phase for the last decade or so.
Investors looking for high capital appreciation can look to an ETF that tracks the NASDAQ 100 Index such as the iShares NASDAQ 100 Index ETF (XQQ). This specific ticker symbol is one that is hedged against the Canadian dollar so you won’t have to worry too much about USD/CAD currency fluctuations.
| Quick Facts | XQQ.TO |
|---|---|
| Fund inception date | May 3, 2011 |
| Net Assets (Oct 31, 2021) | $1.9 billion |
| Exchange | Toronto Stock Exchange |
| Annualized distributions yield | 0.23% |
| Distribution frequency | Semi-annually |
| Management expense ratio | 0.39% |
| Account eligibility | TSFA/RRSP/RESP/RRIF/DPSP |
XQQ has a measly distribution yield of 0.23% per annum. This is nothing to brag about. But XQQ is not an ETF that you invest for dividends. Its main objective is to provide long-term capital growth. The ETF also has a relatively high management expense ratio, but this is easily compensated by the capital appreciation it has seen lately.
iShares NASDAQ 100 Index ETF is ranked as a medium-risk investment. This is likely due to the fact that the ETF solely focuses on the United States market, heavy reliance on the technology sector, and the exclusion of the finance sector, which is often deemed as one of the strongest sectors for investment.
iShares NASDAQ 100 Index ETF (XQQ) Holdings
XQQ holds 102 instruments of the 100 largest non-financial companies in the United States by market cap. You will be able to see the heavy dependence on the technology sector in the top 20 holdings below.
| Holding Name | Weightage |
|---|---|
| Apple Inc. | 12.46% |
| Microsoft Corp. | 10.94% |
| Amazon.com Inc. | 7.37% |
| Tesla Inc. | 5.14% |
| NVIDIA Corp. | 4.6% |
| Alphabet Inc. Class C | 4.03% |
| Alphabet Inc. Class A | 3.77% |
| META Platforms Inc. Class A | 3.42% |
| Adobe Inc. | 2.05% |
| Netflix Inc. | 1.75% |
| Broadcom Inc. | 1.66% |
| Cisco Systems Inc. | 1.61% |
| Costco Wholesale Corp. | 1.61% |
| Pepsico Inc. | 1.53% |
| Paypal Holdings Inc. | 1.43% |
| Comcast Corp. Class A | 1.43% |
| Qualcomm Inc. | 1.43% |
| Intel Corporation Corp. | 1.32% |
| Intuit Inc. | 1.19% |
| Texas Instrument Inc. | 1.16% |
In the holdings of XQQ ETF, around 51% weightage is in the Information Technology sector. While this can be viewed as ‘too much,’ it has also helped the accelerated growth of the NASDAQ 100 Index in recent years. This is yet another real-life scenario of high risk = high reward.
Around 18% of the assets of XQQ are allocated in the communications sector, followed by the consumer discretionary sector with around 17%.
iShares NASDAQ 100 Index ETF (XQQ) Performance
Since the IT sector has seen some bullish gains in the last decade, NASDAQ 100 has also seen similar performances. This boils down to an impressive performance of the iShares NASDAQ 100 Index ETF as well.
Since its inception in 2011, XQQ ETF has seen 580% capital appreciation by 2021. In dollar terms, in exactly a decade, XQQ would have turned a $10,000 initial investment into $68,052 by 2021. This is a very impressive feat. In comparison, the iShares S&P 500 Index ETF (XUS) has only seen 316% growth since 2013 to date.
This is what a dreamy capital appreciation chart should look like. It is also noteworthy that this performance line is quite similar to that of the S&P 500 Index for obvious reasons.
Is XQQ ETF for You?
If you are an investor looking for a bit more risk and reward than the classic S&P 500 Index, XQQ can do that for you. Due to the exclusion of the finance companies from the ETF, one might consider this to be a bit too risky. But this is the nature of the game. This extra risk has been compensated with bigger returns than the S&P 500 Index. For Canadian investors looking for US market exposure and high capital appreciation, the iShares NASDAQ 100 Index ETF (XQQ) can be a pretty good deal. XQQ is also hedged against the US dollar which means that you are rather safe from nasty currency fluctuations.
Check out the latest information about the fund on iShares.
Disclosure: Any information given in this article is not to be construed as investment advice. You must do your own research before investing any money in the stock market. All investments carry inherent risks even with the possibility of losing all your money.
