The PowerShares QQQ ETF: 2 Big Reasons to Buy

By Markets Fool.com


Photo: Flickr user Yuya Sekiguchi.

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One of the best ways to invest in the stock market is through an exchange-traded fund, or ETF, that is based on a broad-market index. This will grant you immediate exposure to the best businesses on the market. One great index-tracking ETF to consider is the PowerShares QQQ ETF , which tracksthe Nasdaq 100.

The Nasdaq 100 is made up of 100 of the biggest nonfinancial companies in the U.S. and abroad, and it's weighted by market capitalization. This means Appleand Microsoft, unsurprisingly, are its top holdings, making up more than 20% of its value.

Here are some key reasons you might want to become a shareholder.

Comprehensive exposure
The PowerShares QQQ ETF will instantly invest you in 100 major companiesinvolved in a wide array of businesses. Within the information technology realm (which makes up nearly 60% of the fund's value), for example, you'll be invested in more than 40 companies involved in everything from semiconductors (Intel, Broadcom, Qualcomm) to automated payroll services (Automatic Data Processing, Paychex) to video games (Activision Blizzard, NVIDIA). Within the consumer discretionary sector, you'll find retailers (Amazon.com, Dollar Tree), media companies (Netflix, DIRECTV), travel specialists (Priceline Group, Marriott International), and much more. And you won't have to decide, for example, which semiconductor company is your best bet or which retailer you want to invest in. The ETF will have you in both Intel and Qualcomm, and in bothCostcoandWhole Foods Market. Instead of betting on a particular company, you're betting that the world will need more and better chips and that consumers will keep buying.

It's true that you'll find greater diversification in funds based on an even broader index, such as the S&P 500, but that can be more diversification than you need. One could argue that the Nasdaq 100 is more appealing because its denizens are large and generally have the savvy management it takes to reach their current size. Indeed, the PowerShares QQQ ETF has outperformed the S&P 500 handily over the past three, five, and 10 years -- though it has lagged it a bit over the past 15. It's certainly diversified enough to protect you if one or two of its holdings crashes(though a bad spell from Apple or Microsoft will have an outsize effect on this ETF).

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Great performance for a low price
Finally, the PowerShares QQQ ETF promises great performance for a low price. It has earned a five-star rating at Morningstar.com, and has averaged annual double-digit gains over the past three, five, and 10 years, rising more than 20% so far this year. Such gains are not to be expected every year, of course, and a security that rises too far too fast is likely to eventually pull back for a while. But this has been a strong long-term performer. Better still, with an expense ratio (annual fee) of 0.20%, it costs relatively little to own. And it pays a dividend, too, recently yielding about 1.3%. Consider that icing on the cake.

If you're looking for a wide-ranging index fund for your portfolio, give the PowerShares QQQ ETF some thought.

The article The PowerShares QQQ ETF: 2 Big Reasons to Buy originally appeared on Fool.com.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors.Longtime Fool specialist Selena Maranjian, whom you can follow on Twitter, ownsshares of Activision Blizzard, Amazon.com, Apple, Costco Wholesale, Intel, Microsoft, Netflix, Priceline Group, Qualcomm, and Whole Foods Market. The Motley Fool recommends Activision Blizzard, Amazon.com, Apple, Automatic Data Processing, Costco Wholesale, Intel, Netflix, Nvidia, Paychex, Priceline Group, and Whole Foods Market. The Motley Fool owns shares of Activision Blizzard, Amazon.com, Apple, Costco Wholesale, Intel, Microsoft, Netflix, Priceline Group, Qualcomm, and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.