This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Growing Risks of Nasdaq 100 Fund

Stocks in this article: QQQ VGT RSP QQWE

New York ( TheStreet) -- With $31 billion in assets, PowerShares QQQ (QQQ) ranks as one of the most popular exchange-traded funds. Lately shareholders have had cause to be pleased. The ETF, which tracks the Nasdaq 100, has returned 17.9% this year, outdoing the S&P 500 by more than 3 percentage points, according to Morningstar.

The long-term returns have also been notable. During the past 10 years, the PowerShares fund returned 10.8% annually, topping the S&P by 4 percentage points and surpassing 99% of large growth competitors.

But after the big rally, there is reason to be wary. The ETF owes much of its stellar showing to Apple (AAPL), which accounts for 19.7% of the assets. This year Apple shares have returned 49.8%. During the past decade, the stock has returned 54% annually.

Besides Apple, the fund has big positions in a handful of technology giants, including Microsoft (MSFT), Google (GOOG) and Oracle (ORCL). Altogether eight technology stocks account for 52% of the assets. If the technology sector disappoints, then the QQQ fund could sink badly.

Even if you are bullish on technology, the PowerShares fund may not be the best choice. The problem is that the ETF has a peculiar structure, holding 100 of the biggest stocks that trade on Nasdaq. While the S&P 500 is deliberately designed to provide a cross section of the market, the QQQ index focuses on whatever stocks happen to dominate the Nasdaq listings. The benchmark has 63% of assets in technology, and most of the rest are in health care and consumer cyclicals.

There are no energy or financial stocks. As a result, the benchmark does not provide broad market exposure, and it is not a pure play on technology.

Launched in the bull market of the late 1990s, the QQQ fund became an immediate hit because it offered a convenient way to bet on Nasdaq's hottest growth stocks. When the Internet bubble burst in 2000, the fund sank hard.

Today the ETF remains popular with investors who want to place a bullish bet on the market, says Matt Hougan, senior editor of "When the market is rising, people reach for the QQQs," he says.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs