Inclusion of Nasdaq-100 increases liquidity of foreign stocks
The Nasdaq-100 index (NDX) differs from broad market competitors, such as the S&P 500, in a number of ways. For example, NDX Significantly overweight technology stocks and have no exposure to the financials sector.
It is forgotten, however, that the Nasdaq-100 includes foreign companies, unlike the S&P 500. This means that monitoring popular exchange-traded funds NDX, as the Invesco QQQ Confidence (QQQ ) and the Invesco NASDAQ 100 AND F (QQQM), include ex-US stocks on their respective lists.
The reason why QQQ and QQQM owning foreign stocks is easy. While the S&P 500 and Russell 1000 indices require companies to be based in the United States to enter these benchmarks, NDX simply requires that a company be listed on the Nasdaq. For foreign companies entering the Nasdaq-100, there are liquidity advantages.
âTracking indices helps attract more investors. The exchange traded products that track the Nasdaq-100 have an aggregate asset base of over $ 230 billion. This means that for every 1% of weight in the Nasdaq-100 index, a company can expect to have about $ 2 billion in additional interest for index investors, ânotes Phil Mackintosh of the Nasdaq.
While many AND F investors, especially those who adopt a profitable fund like QQQM, are long-term investors, this does not affect liquidity. In fact, the Nasdaq-100 has one of the best liquidity among the major stock gauges.
âQQQs, one of the most liquid ETFs in the world, trade around $ 15 billion every day,â adds Mackintosh. âThe Nasdaq-100 futures contracts which trade over $ 176 billion every day on E-mini Micro E-mini. Nasdaq-100 options which have an average notional trading, based on option prices, of $ 25 billion per day. “
For investors seeking exposure to individual foreign stocks, the Nasdaq-100 serves as a solid frame of reference because the international stocks residing in the benchmark index are very liquid and this liquidity can result in reduced transaction costs.
âThe data shows that, for large-cap stocks, the average and median spreads (in basis points) are also lower for foreign quotes included in the Nasdaq-100,â Mackintosh explains. “This should translate into lower trading costs and lower costs of capital for these listings.”
While QQQ and QQQM are not heavily allocated to foreign stocks, ETFs are home to familiar ex-US names, such as JD.com (NASDAQ: JD) and MercadoLibre (NASDAQ:MELI), among others. Increased liquidity through NDX, regardless of the country of origin of the components, is a plus for investors as it can lead to tighter spreads and lower costs for investors trading in QQQ and QQQM.
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