Today Walter Frank recommends an index-tracking ETF that’s a one-stop way to get exposure to the technology sector and other growth stocks when they’re leading, as they have been so far this year.
Fidelity Nasdaq Composite Index Tracking ETF (ONEQ)
from Moneyletter
We are buying the Fidelity Nasdaq Composite Index Tracking ETF (ONEQ) in the Fidelity-only model portfolios. The fund offers broad representation to the technology- heavy Nasdaq market. ... Notable firms including Intel, Microsoft, Apple, Cisco, Oracle and Dell, among others, all used capital raised on the Nasdaq to fuel their growth. Today, the Nasdaq Composite, a market capitalization-weighted index of all stocks trading on the exchange, remains heavily tilted toward the technology sector, with nearly 48% of its assets there. That, of course, comes with advantages and drawbacks. The technology area in general has high growth potential, but the drawback is that when the sector is out of favor, the index suffers as well. ...
The Nasdaq Composite index is comprised of more than 3,000 stocks, but ONEQ uses a representative sampling technique to replicate the index with just under 1,900 stocks. As with the index, ONEQ is technology heavy, with nearly half of assets in the sector. The fund’s health care holdings are dominated by biotechnology firms.
As you can see, each of the five largest fund holdings hail from the technology sector. And looking deeper, all but one of the top eight are tech firms, the lone standout being Amazon.com. Starting at holding number nine, though, non-technology firms make their presence known. Number nine is Comcast (communications services), followed by health care firms Gilead Sciences, and Amgen, next eBay (consumer cyclical), and again health care/biotech company Biogen Idec. The top ten holdings account for 32% of total assets.
Within those top firms, the strongest performers this year have been Gilead Sciences (up 64%) and Biogen Idec (up 46%). Gilead has focused on infectious diseases, and it is a dominant leader in the treatment of HIV. A recent acquisition gained it a promising new treatment for Hepatitis C. Biogen Idec, long a leader in the treatment of multiple sclerosis (MS), also focuses on other autoimmune disorders, cancer, neurodegenerative diseases and hemophilia.
Performance
ONEQ closely tracks its benchmark index in performance. The fund falls into Morningstar’s large growth category. In markets where growth-y stocks are in favor, it outperforms, and the opposite is also true. Most recently, it has advanced just shy of 20% in 2013 through the end of August. That bests the 16.2% return of the S&P 500 and puts it in the top third of its peer group.
Walter Frank, Moneyletter, www.moneyletter.com, 800-890-9670, September 2013