The Nasdaq Composite, one of the U.S. stock market’s three main indexes, has had an interesting few months. After hitting an all-time high on Dec. 16, the index is officially in a correction, down over 14% through the end of March.
Just because the Nasdaq has struggled doesn’t mean investors should avoid it completely. Instead, there’s a different way to invest in it that could be beneficial for times like now, when the market has more uncertainty than usual. One way is through the Nasdaq-100, a subset of the Nasdaq Composite that contains the largest 100 non-financial companies trading on the Nasdaq stock exchange.
The most popular Nasdaq-100 exchange-traded fund (ETF) is the Invesco QQQ Trust ETF (QQQ -6.01%), but perhaps a smarter way to invest in the Nasdaq-100 could be via an equal-weight ETF like the Direxion NASDAQ-100 Equal Weighted Index Shares (QQQE -6.26%).
QQQE data by YCharts. Percentages from Jan. 1 through March 31.
Why the equal-weight ETF may be a good route right now
The standard Nasdaq-100 ETF is market cap-weighted, so megacap tech stocks make up a large amount of the ETF. The “Magnificent Seven” stocks (Apple, Nvidia, Microsoft, Amazon, Alphabet, Meta Platforms, and Tesla) alone make up over 39% of the ETF. That’s a lot riding on a handful of companies.
With the Direxion Nasdaq-100 Equal-Weight ETF, all companies make up virtually the same amount of the fund. Here are the top 10 holdings of the Nasdaq-100 compared to their percentages in the Direxion Nasdaq-100 Equal-Weight ETF:
| Company | Nasdaq-100 | Direxion Nasdaq-100 Equal-Weight ETF |
|---|---|---|
| Apple | 9.79% | 1% |
| Nvidia | 8.50% | 1% |
| Microsoft | 8.10% | 1% |
| Amazon | 5.96% | 1% |
| Alphabet (Class A and C) | 5.58% | 1% |
| Broadcom | 4.63% | 1% |
| Tesla | 3.79% | 1% |
| Meta Platforms | 3.30% | 1% |
| Costco Wholesale | 2.58% | 1% |
| Netflix | 2.42% | 1% |
Data source: Direxion. Percentages as of Dec. 31, 2024.
With most ETFs being market cap-weighted, paying attention to how much of your investments are going into a handful of companies is important. This is especially true if you’re investing in other tech ETFs or an S&P 500 ETF, which generally have a high percentage of the Magnificent Seven companies.
This ETF is a way to hedge against big tech sell-offs
If the goal is to invest in the Nasdaq as a whole, there’s no need to keep piling money into the same handful of companies and putting your performance into their hands. When it’s going well, it’s usually great; when it’s going badly, it’s often terrible.
Ideally, you find a middle ground, which this ETF provides. It may not have the huge gains in periods when the big tech sector is booming, but it also doesn’t have the downside when investors start jumping ship (as we’ve seen through the first three months of 2025).
For example, let’s look at 2022, when the tech sector experienced one of its worst years in recent times and it weighed heavily on the Nasdaq-100.
Of course, finishing a year down 25% isn’t quite celebration-worthy, but it’s much better than finishing down 33%. This is just one example, too. The same trend (albeit to a lesser degree) has happened a few more times during corrections since the Direxion Nasdaq-100 Equal-Weight ETF’s inception in March 2012.
The ETF isn’t cheap compared to others
One downside to this ETF is its relatively high expense ratio at 0.35%, or $3.50 per $1,000 invested annually. However, if the ETF continues its long-term annual average gains — close to 12% since its inception — you can justify it for a $1,000 investment.
This ETF is not immune to volatility (none are), and there is no telling how it will perform going forward. However, it holds some great companies from many different industries that can each do their part to make sure your $1,000 goes a long way over time.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Stefon Walters has positions in Apple and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Costco Wholesale, Meta Platforms, Microsoft, Netflix, Nvidia, and Tesla. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.