ONEQ: What Owning The Entire Nasdaq Composite Index Gets You

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flavijus Investment Thesis The Fidelity Nasdaq Composite Index ETF (NASDAQ:ONEQ) is the only ETF available that tracks the Nasdaq Composite Index, a group that includes all domestic and international ...

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GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4693768-oneq-etf-owning-entire-nasdaq-composite-index-gets-you><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>flavijus Investment Thesis The Fidelity Nasdaq Composite Index ETF (NASDAQ:ONEQ) is the only ETF available that tracks the Nasdaq Composite Index, a group that includes all domestic and international ...</p>\n\n<a href=\"https://seekingalpha.com/article/4693768-oneq-etf-owning-entire-nasdaq-composite-index-gets-you\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"IE00B775SV38.USD","symbol_name":"NEUBERGER BERMAN US MULTICAP OPPORTUNITIES \"A\" (USD) 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While it shares many of the same features as the more popular Invesco QQQ Trust ETF (QQQ), which holds only the 100 largest Nasdaq Composite Index stocks, there are some slight fundamental differences I want to note that might tip the scales in favor of ONEQ. Below is a detailed analysis of ONEQ's top 25 holdings, highlighting metrics like size, volatility, growth, valuation, and quality. I hope you can use this information to make the best decision for your portfolio, and as always, I look forward to your comments afterward. ONEQ Overview Strategy Discussion Seeking Alpha provides a brief description of an ETF's objectives and selection process on each quote page. For ONEQ, I've summarized three of the most relevant points below:  The fund tracks the Nasdaq Composite Index. The fund invests in growth and value stocks in all size segments. The advisor uses statistical sampling techniques to select stocks.  The last point means ONEQ does not hold all stocks in the Nasdaq Composite Index, which includes upwards of 3,000 stocks. Instead, ONEQ holds about 1,000 stocks, but a quick look at the ETF's returns against its benchmark reveals the statistical sampling techniques work reasonably well. As of March 31, 2024, ONEQ's annualized returns were 15.79% compared to 15.73% for the Index. Due to the 0.21% expense ratio, one would expect the ETF's returns to be lower than the benchmark, but in this case, not perfectly tracking the Index turned out better for shareholders. Fidelity Performance Analysis ONEQ was established in September 2003 and has gained an annualized 12.27% since, 2.23% lower than QQQ. Based on this chart, it doesn't seem like a good choice, as even the difference in volatility (standard deviation) isn't enough to produce competitive risk-adjusted returns, as measured by the Sharpe Ratio. Portfolio Visualizer More recent returns aren't too impressive, either. The table below highlights how ONEQ has trailed QQQ by nearly 3% per year over the last five years for the month ending April 2024. The takeaway is that avoiding mega-cap stocks has not been a winning strategy in recent years. That's not to say you shouldn't diversify, but you must be careful about what you substitute in place of mega-cap stocks. In this case, ONEQ holds about 900 smaller stocks that are not in QQQ, representing about 30% of the fund's total weight. As the title of this article indicates, the purpose is to find out what that extra 30% gets you and whether it's worth pursuing ONEQ for better diversification. Portfolio Visualizer ONEQ Analysis Concentration Analysis ONEQ's top ten holdings, as of April 30, 2024, are listed below, totaling 56.60% of the portfolio. After excluding the Fidelity Securities Lending Cash Central Fund and combining both share classes of Alphabet Inc. (GOOG), (GOOGL), the total is 56.87%, which includes Costco Wholesale Corporation (COST) and Netflix, Inc. (NFLX). Fidelity QQQ's top ten holdings total 49.88%, an improvement over ONEQ but still very concentrated. From a sub-industry perspective, ONEQ invests in 125/160 compared to 45/160 for QQQ, and while that seems like a big difference, it's crucial to know that 87.85% of ONEQ's assets are invested in the top 25 sub-industries. This problem applies to nearly every large-cap growth ETF, including equal-weight funds like the First Trust NASDAQ-100 Equal Weighted Index Fund ETF (QQEW), which has 81.07% invested in its top 25. The takeaway is that large-cap growth investors must embrace concentration and appreciate how the most prominent companies trading on the Nasdaq Composite are also likely the best. Consider how each of the top ten holdings listed earlier has \"A+\" Seeking Alpha Profitability Grades. If you give some of that up to improve diversification, you should get something meaningful in return, so let's look at that next. ONEQ Fundamentals vs. QQQ The following table highlights selected fundamental metrics for ONEQ's top 25 holdings, totaling 67.21% of the portfolio. Please note these allocations differ slightly from what was presented earlier, as they are the most up-to-date as of May 15, 2024. The Sunday Investor I have three observations: 1. You may be surprised to see ONEQ have a larger weighted average market capitalization figure than QQQ ($1.279 trillion vs. $1.030 trillion) despite having many more holdings. The reason is that ONEQ follows a simple market-cap-weighting scheme. QQQ does, too, but as described in its methodology document, the aggregate weight of stocks with weights above 4.50% cannot exceed 48% at each rebalancing. This rule triggered last year's special rebalancing of the Nasdaq-100 Index. Therefore, QQQ arguably promotes diversification better, especially if you're concerned with Microsoft Corporation (MSFT) and Apple Inc. (AAPL), which comprise nearly one-quarter of the fund. 2. As expected, there is a noticeable drop in profitability when you add 900 smaller Nasdaq stocks to the portfolio. ONEQ's profitability score is 9.26/10 compared to 9.63/10 for QQQ, partially because the former holds 300 stocks (6.07% by weight) with negative net margins. In addition, ONEQ holds some relatively low-quality Financials stocks, a GICS sector excluded in QQQ except for PayPal Holdings, Inc. (PYPL). The result is a profit score that ranks #36/55 in its category, which isn't too low but certainly nothing to boast about. 3. ONEQ's key advantage is its slightly better growth and valuation metrics. For example, its weighted average one-year estimated sales growth rate is 1.19% better than QQQ (12.88% vs. 11.69%), and it trades at 31.02x forward earnings using the simple weighted average method, 0.50 points less than QQQ. For the most part, this is what investors should expect when adding small- and mid-cap stocks, but I emphasize that these differences are minor and reflect consensus Wall Street analyst estimates only. I don't think it's enough to move the needle one way or another. Investment Recommendation  My fundamental analysis revealed that compared to QQQ, ONEQ offers slightly better growth and value metrics but at the expense of quality, evidenced by a profit score that ranks below average. I also found that ONEQ is not necessarily better-diversified than QQQ, given the lack of a weight check that ensures top holdings don't dominate the Index. The result is an ETF that is nearly one quarter allocated to Microsoft and Apple, and at this point, it might be better to consider Index skimming to avoid the 0.21% expense ratio. Therefore, I have assigned a \"hold\" rating to ONEQ, and I look forward to answering your questions in the comments below. Thank you for reading.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.5","shortVersion":"4.22.5","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2436600395"}