How to Invest in Nasdaq

Apple, Microsoft, Alphabet: The Nasdaq 100 combines the world’s biggest and most important tech companies. This guide from moneyland.ch provides the information you need in order to begin investing in this major US stock market index as a Swiss investor.

What is the Nasdaq 100?

The Nasdaq 100 tracks the 100 biggest companies listed on the Nasdaq stock exchange in New York, excluding companies in the finance sector. Which stocks are included, and how much weight they carry in the index, is determined solely on the basis of market capitalization. However, one company’s stock cannot make up more than 24 percent of the index.

A look at the index confirms Nasdaq’s reputation as an exchange for tech stocks, with tech companies making up more than 50 percent of the index.

Table 1: The 10 companies with the biggest weightings in the Nasdaq 100

*The weighting shown is for Alphabet’s A and C stocks combined.

Source of weighting figures: Nasdaq. Date: November 1, 2023. Data sampled on November 30, 2023.

When Swiss investors talk about the Nasdaq index, they are normally referring to the Nasdaq 100 index. Another important index is the Nasdaq Composite, which tracks more than 3000 companies listed on the Nasdaq exchange. The Nasdaq Composite is much more diversified than the Nasdaq 100. But in practice, the Nasdaq Composite is strongly influenced by the most heavily weighted companies. This results in the two indexes having very similar performance.

The Nasdaq 100 is a price index. That means its performance does not account for stock dividends. There is a sub-index, the Nasdaq 100 Total Return index, which accounts for dividends in its performance.

How accurately does the Nasdaq 100 reflect the US stock market?

The Nasdaq 100 is only moderately representative of the overall US stock market. While it does include some of the biggest US companies, its focus on specific industry sectors means it is not representative of the market as a whole. The Nasdaq 100 primarily reflects the tech sector. Industrial companies outside of the tech sector only play a limited role, and banks are excluded completely.

The Nasdaq Composite, with more than 3000 different stocks, is much more widely diversified. But in practice, it is dominated by the same big companies that also make up the lion’s shares of the Nasdaq 100.

If you also want to invest in non-tech US stocks, the Dow Jones Industrial Average and the S&P 500 are more suitable indexes.

How can I invest in the Nasdaq 100?

There are different ways to invest in the Nasdaq 100. These options are available to Swiss investors:

• Buy shares in the individual stocks tracked by the Nasdaq 100.
• Buy shares in an exchange-traded fund (ETF) tracked by the Nasdaq 100.
• Buy shares in actively managed mutual funds.
• Buy a tracker certificate that tracks the Nasdaq 100.
• Use a fund savings plan based on Nasdaq 100 funds or ETFs.
• Use an online asset management service (robo advisor) that invests in the stocks tracked by the Nasdaq 100.

Which ETFs can I use to invest in the Nasdaq 100?

ETFs provide a way to invest in all of the stocks that make up the Nasdaq 100, even if you only have relatively small amounts of capital to invest. These passively managed funds invest in the stocks underlying the index in order to replicate it as accurately as possible. ETFs are traded on stock exchanges just like the stocks of companies. All that you need in order to buy shares in ETFs is a stock brokerage account. Swiss banks that specialize in online trading generally have lower fees and charges than other banks. You can find out which brokerage account is best for your investment need using the online trading comparison on moneyland.ch.

Alternatively, you can also invest in ETFs with the Swiss neobanks Neon and Yuh. However, the list of ETFs and stocks that you can invest in using these neobanks is limited. It is possible that not all of the Nasdaq 100 ETFs listed below will be available in these apps.

Table 2: ETFs that track the Nasdaq 100, sorted by their ongoing costs (TERs)

Date: December 4, 2023.

The ETFs listed in the Table 2 all use physical replication. That means the fund holds actual shares in the companies tracked by the Nasdaq 100. Physically replicating ETFs are considered more secure than ETFs that use synthetic replication based on swaps.

What are the costs of investing with ETFs?

An advantage of passively managed funds like ETFs is that they have relatively low fees – especially when compared to actively managed mutual funds. The fund costs are shows as the total expense ratio (TER). But there are other costs which you should also pay attention to, such as the brokerage fees and custody fees charged by your bank for buying, holding, and selling ETF shares, and Swiss stamp duties.

The Swiss stamp duties are the same no matter which Swiss bank you use, but there are big differences in the brokerage fees and custody fees charged by different banks. The online trading comparison on moneyland.ch helps you find the most affordable stock brokerage account for your needs.

What are the advantages of investing in the Nasdaq 100?

The Nasdaq 100 blends world-famous companies with high-return stocks. Investments in the tech sector can potentially deliver high returns. A look at past performance shows that between 2018 and 2023, the Nasdaq 100 gained far more value than the Swiss Market Index, Switzerland’s flagship stock index.

Table 3: Performance of the Nasdaq 100 compared to the SMI

The performance figures are based on the closing prices on December 4, 2018, and December 4, 2023. Currency exchange rates used are based on closing prices on the same dates. Sources: Investing.com (index performance), Finanzen.ch (currency exchange rates).

What are the disadvantages of investing in the Nasdaq 100?

The strong focus on specific sectors is a disadvantage. Money invested in the Nasdaq 100 is not spread out over many different sectors. While the index, with its 100 stocks, is numerically more broadly diversified than the Swiss Market Index with 20 stocks, more than 50 percent of the Nasdaq 100 is comprised of just the tech sector.

The tech sector is prone to fluctuations, and stand out with its high volatility. High potential returns are countered by substantial risks, especially for short-term investing. If you have a hard time coping with market fluctuations, then you should probably stay away from investing in the Nasdaq 100.

The currency exchange risk also should not be underestimated. The Nasdaq 100 is denominated in US dollars. If the US dollar were to lose value against the Swiss franc, that would have a negative impact on your real returns.

Also note that stock dividends paid out to shareholders of US companies are subject to a US withholding tax. You can reclaim part of this tax when you complete your Swiss tax returns. You can find more information in the guide to investing in US stocks.

Conclusion

If you want to take advantage of the Nasdaq 100s potential to deliver high returns, investing in an ETF that tracks the index is a simple and cost effective way to do it. The Nasdaq 100 is most suitable as one component in a broad stock or ETF portfolio that includes investments in many different countries and industry sectors. However, the Nasdaq 100 should not make up the backbone of your investment portfolio because its imbalanced industry sectors and focus on the tech sector make it prone to heavy losses.

More on this topic:
How to invest in the SMI
How to invest in the SPI
How to invest in the DAX
How to invest in the Nikkei
How to invest money in Switzerland