Personal Investor: ETFs that can last a lifetime
There’s plenty to like about exchange traded funds: Low fees, transparency and the ability for the average investor to piggyback on the broader markets. But one advantage that is often overlooked is the ability of market weighted, index-linked ETFs to evolve over time. Top holdings that underperform are swept aside to make way for the next day’s rising stars.
One example is the legendary Invesco QQQ Trust, which tracks the Nasdaq 100 index. If you bought the triple-Q in the wake of the 2000 tech meltdown when the Nasdaq plunged from over 5,000 points to below 2,000, you would have a very different ETF today – not to mention a 300-per-cent return on your investment as the Nasdaq nears 8,000.
Among the largest 15 companies in the index back in 2000, only four remain in the top 15 today: Microsoft Corp., Cisco Systems Inc., Intel Corp. and Qualcomm Inc. Many of the companies currently topping the Nasdaq like Google Inc., Facebook Inc. and Netflix Inc. were not even known to the average investor. Investors who have held the triple-Q for decades can rest assured that today’s behemoths that falter will be cast aside for tomorrow’s household technology names.
The same rule applies to many ETFs that track indices in technology-related sectors such as health care and biotechnology, where it’s likely the sectors will advance but it may be too risky to pick individual names.