Bringing Nasdaq Leaders and Rising Stars to Australia
Beyond MAG 7 - and Beyond Technology
Australia’s largest technology firm, team collaboration group, Altassian, is listed on the US Nasdaq exchange, and Australia does not really have mainstream global technology leaders. Therefore, it is no surprise that Australians will look North West to the USA for exposure to global tech leaders.
The Beta Shares Nasdaq 100 ETF tracks the 100 companies making up the Nasdaq 100 index, just like the famous US listed ETF, QQQ, which is one of the worlds’ top ten ETFs tracked by ULTUMUS. Whereas QQQ is priced in US dollars, NDQ:ASX is priced in Australian Dollars and includes essentially the same underlying currency risk though investors may avoid any currency conversion commissions or charges for trading non-AUD stocks (investors who wish to hedge out the USD risk can opt for the currency hedged version, HNDQ).
Over the past year, the Magnificent 7 (MAG 7) stocks – Microsoft, Apple, Alphabet, Meta, Amazon, Nvidia, and Tesla – have been driving the larger part of US equity returns, and these seven stocks make up about 40% of the Nasdaq 100, even after the special rebalancing in July 2023 that somewhat reduced their weightings. Some investors including those embracing AI are happy with this level of concentration, but others want more diversification by sectors, sub-sectors and companies.
Such investors could consider the equal weighted ETF, QNDQ:ASX (Ozzy version of US listed EWQX), which will have around 1% in each of the Nasdaq 100 constituents. This makes quite a dramatic difference since MAG 7 have weights between 3% and 9% that get reduced, while 75 Nasdaq 100 constituents with market cap weights below 1% will have a larger weight in the equal weighted product. They include radio group, Sirius XM holdings; pharmacy chain Walgreen Boots Alliance and biotech Illumina, all of which rise roughly sevenfold from about 0.15% to 1% weightings. Perhaps surprisingly, the lower end of the Nasdaq 100 also contains several energy and related companies: oil services group, Baker Hughes; Texas oil and gas producer, Diamondback Energy and Minneapolis based electricity and natural gas firm, Exel Energy. Australia’s Altassian increases from a 0.25% weighting in the regular Nasdaq 100 to 1% in the equal weight version.
Meanwhile, those seeking the “next” Nvidias of the equity market could consider JNDQ (an AUD and Australian listed version of US-listed JQQQ), which invests the Nasdaq Next Generation 100 index: the next 100 largest Nasdaq names after the Nasdaq 100: non-financial companies with market capitalisations, ranked between 101 and 200. These “rising stars” might be dubbed as “mid caps” in the US equity market, but many of them would be classified as “large caps” in other global equity markets including Australia’s. They include some recent spectacular performers, such as Super Micro Computer, which has tripled in price in the first five weeks of 2024. This index only has 35% in information technology, while its 20% in healthcare and 15% in consumer discretionary make it more like the broader US equity market.
These ETFS also relieve investors of the need to submit a W8-BEN form to the US IRS Tax authorities, in order to reduce or avoid withholding taxes on dividends. Dividends are not a huge part of tech or US Nasdaq investing, with the QQQ yield having ranged between 0.42% and 0.95% over the past five years, but nonetheless investors should not incur unnecessary levels of withholding taxes on dividends, which could be up to 30% if the forms are not filled in.