There are strong arguments for diversifying an investment portfolio into international markets, and the NASDAQ is a prime example.
Over the last 12-months this powerhouse of a market has risen 35.8% compared to Australia’s top index, the ASX-200, of just 14.1%, and since the lows of the GFC in 2009 the NASDAQ risen, almost without pause, some 214%. This represents a 25.4% annualised gain for five straight years.
NASDAQ is the second largest stock market in the world after the New York Stock Exchange and was the first fully electronic exchange. It contains two major indices, the NASDAQ Composite and the more popular NASDAQ 100. It’s best known for its technology and internet stocks and probably more so for the massive bubble that was driven by Y2K concerns and finally imploded in 2000. Within 12-months of its 2000 peak the market fell some 50% and as at writing it’s still yet to surpass those heady days. The following monthly chart depicts the considerable ups and downs of the NASDAQ Composite:
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The NASDAQ contains some of the world’s largest and best known brands, such as Apple, Adobe, Amazon, Ebay, Facebook and Google. It’s many of these companies driving the gains in the market over the last five years as global consumers harness new technology in the retail and social world we now live in. Google has risen 396% in just a few years and Apple had gained some 800% before taking a well deserved pause.
Many of these companies trade at significantly higher prices compared to Australian stocks and many domestic investors get put off as they don’t appear to be holding many shares. This is the wrong way to look at it. In very simple terms a $1000 investment in Apple trading at $500 per share is the same as a $1000 investment into Commonwealth Bank at $75. The difference in the quantity of shares held will not detract from returns achieved.
Should an investor not want to invest in individual companies the PowerShares QQQ ETF tracks the performance of the NASDAQ-100 index and is readily accessible via E*TRADE. This ETF currently trades around the $90 level and provides broad exposure to the top stocks and therefore is an extremely easy and accessible way to add NASDAQ stocks to a portfolio.
Investing in international markets does have various costs and associated risks and every investor should fully understand these before proceeding. These include:
- Exchange rate risk
- Currency conversion fees
- Higher commission charges
- Custodial fees
Today many brokers such as E*TRADE offer various international ETF’s that are domiciled in Australian dollars which can alleviate a number of the above risks and associated costs, but be sure to check the PDS for full details and offerings.
Nick Radge heads a team of technical analysts at The Chartist, reviewing individual stocks and markets. AFSL 288 2000.
For more information on the stock exchange, visit E*TRADE.
This article was sponsored by E*TRADE Australia. The opinions in the article are the personal opinions of the author and not of E*TRADE Australia. To the extent permitted by law, E*TRADE Australia does not accept any liability or responsibility in connection with the use or reliance on the information in the above article. ETRADE Australia Securities Limited (trading as E*TRADE Australia) (ABN 93 078 174 973, AFSL No.238277) is the provider of the ANZ E*TRADE online investing service.