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Why You Should Be After QQQQ

QQQQ has a high correlation to other major benchmark indexes, providing long-term shareholders a tool to "stay on the highway" and follow market trends, and short-term investors a tool to hedge market movements. QQQQ's correlation to the S&P 500 is about 90%, while its correlation to the Dow Jones Industrial Average is about 78%.

It is important to note, however, that despite the high correlation between the QQQQ and the S&P 500, the composition of the fund is very different. Just 18% of the stocks in the QQQQ are also in the S&P 500 -- an important consideration before swapping one for the other. On the other hand, however, the S&P 500 has a 16% allocation to tech and QQQQ's components make up virtually the entire slice.

While average daily trading volume is a good indicator of ETF liquidity, the liquidity of the stocks that comprise the ETF can be an equally important measure of the viability of a fund. By these two measures, the QQQQ is liquid through and through.

The three-month average daily trading volume of QQQQ is nearly 150 million shares, keeping spreads tight throughout the day. Since it is a market-cap weighted index, QQQQ's top components are also extremely liquid -- top component Apple has a three month average trading volume of more than 20 million.

QQQQ's liquidity means that you won't have to pay large premiums to participate. The composition of the fund allows it to be very reactive to market changes and provide signals for traders throughout the day.

Don Dion is the publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers. Dion is also president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years� experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.
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