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Growing Risks of Nasdaq 100 Fund

The fund often performs well in up markets, Hougan says. But because of its lopsided sector allocations, the ETF will not excel when such sectors as energy lead the rally. Hougan says that instead of using the PowerShares fund, investors should prefer other alternatives. Those who seek to hold technology should consider a pure fund, such as Vanguard Information Technology (VGT).

Investors who want to place a bullish bet on the broad market might prefer holding Guggenheim S&P 500 Equal Weight (RSP). The equal-weight fund has assets in every sector and does not emphasize any one stock. In addition, the Guggenheim fund may pack a bit more punch in a rally as indicated by a measure known as beta, which describes an investment's sensitivity to market movements.

The Guggenheim fund has a beta of 1.11. So if the S&P 500 rises by 100, the fund would tend to climb by 111. The PowerShares fund has a beta of 1.08.

Another way to hold the Nasdaq 100 and get some extra juice is with First Trust Nasdaq 100 Equal Weight (QQEW), which has a beta of 1.16. The fund has about 1% of assets in each of the 100 stocks. When the market soared in 2009, the First Trust fund returned 59.5%, compared to 54.5% for the PowerShares QQQ fund. The First Trust fund can jump higher because it has more weight in volatile, smaller stocks, which tend to spring when markets rebound sharply.

The equal-weight fund has 47% of assets in technology. Because it has a small stake in Apple, the First Trust fund has lagged PowerShares QQQ during the past five years. But if Apple stumbles, the equal-weight fund could move into the lead.

Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.
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