Whether you love it or hate it, the PowerShares QQQ ( QQQQ) is one of the most highly monitored and frequently traded ETFs in the market today. This benchmark ETF tracks the capitalization-based Nasdaq 100 Index and is composed of the largest domestic and international non-financial companies listed on the Nasdaq.

While QQQQ has a high correlation with other large-cap growth ETFs, like the iShares S&P 500 Growth Index ( IVW) and Vanguard Growth ETF ( VUG), key differences have helped QQQQ emerge as one of the most popular ETFs in the market today.

To call the QQQQ "tech heavy" is an understatement. According to issuer PowerShares, the QQQQ has a 62.99% tech allocation. The second and third largest sectors in the QQQQ are health care and consumer discretionary, comprising 16.56% and 12.59% of the fund, respectively.

QQQQ's top 10 holdings make up more than 45% of the fund, with prime holding Apple ( AAPL) comprising 13.21%. This top-heavy structure makes QQQQ particularly vulnerable to the movements of its top components. Top holdings can serve as a buoy or an anchor depending on the day's news.

QQQQ's tech-heavy nature is revealed in a quick perusal of the top 10 holdings, eight of which are technology stocks: Apple, Qualcomm ( QCOM), Microsoft ( MSFT), Google ( GOOG) ( GOOG), Research In Motion ( RIMM), Oracle ( ORCL), Cisco ( CSCO) and Intel ( INTC) fall under the technology sector. The remaining two components are healt care stocks: Gilead ( GILD) and Teva Pharmaceutical ( TEVA).

In addition, QQQQ offers traders a multitude of trading strategies to enhance their portfolios. The QQQQ options are among the top four most actively traded options on the CBOE.

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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