Nasdaq-100 Inclusion Bolsters Liquidity in Foreign Stocks


The Nasdaq-100 Index (NDX) differs from competitors in the broad market, such as the S&P 500, in a number of ways. For example, NDX is significantly overweight technology stocks and has no exposure to the financials sector.

It is forgotten, however, that the Nasdaq-100 includes foreign companies, unlike the S&P 500. This means that popular exchange-traded funds following NDX, such as the Invesco Trust QQQ (QQQ) and the Invesco NASDAQ 100 ETF (QQQM), include ex-US stocks on their respective lists.


The reason why QQQ and QQQM hold foreign stocks is simple. While the S&P 500 and Russell 1000 indices require that companies be based in the United States to enter these benchmarks, NDX simply requires that a company be listed on the Nasdaq. For foreign companies entering the Nasdaq-100, there are liquidity advantages.

“Tracking indices helps attract more investors. The exchange traded products that track the Nasdaq-100 have an aggregate asset base of over $ 230 billion. This means that for every 1% weighting of the Nasdaq-100 index, a company can expect to have around $ 2 billion in additional interest from index investors, ” note Phil Mackintosh of the Nasdaq.

While many ETF investors, especially those who adopt a profitable fund like QQQM, are long-term investors, this doesn’t hurt liquidity. In fact, the Nasdaq-100 has one of the best liquidity among the major stock gauges.

“QQQ, one of the most liquid ETFs in the world, trades about $ 15 billion every dayMackintosh adds. “The Nasdaq-100 futures contracts which trade over $ 176 billion every day across E-mini and Micro E-mini. Nasdaq-100 options which have an average notional trading, based on option prices, of $ 25 billion per day. “

For investors seeking exposure to individual foreign stocks, the Nasdaq-100 serves as a solid frame of reference because the international stocks residing in the benchmark index are very liquid and this liquidity can result in reduced transaction costs.

“The data shows that, for large-cap stocks, the average and median spreads (in basis points) are also lower for foreign quotes included in the Nasdaq-100,” Mackintosh explains. “This should translate into lower trading costs and lower costs of capital for these listings.”

While QQQ and QQQM are not heavily allocated to foreign stocks, ETFs are home to familiar ex-US names, such as (NASDAQ: JD) and MercadoLibre (NASDAQ: MELI), among others. Increased liquidity through NDX, regardless of the country of origin of the components, is a plus for investors as it can lead to tighter spreads and lower costs for investors trading in QQQ and QQQM.

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The opinions and forecasts expressed herein are solely those of Tom Lydon and may not come to fruition. The information on this site should not be used or interpreted as an offer to sell, a solicitation of an offer to buy or a recommendation for any product.


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