ETFs are a popular option for investors because it allows them to easily diversify their holdings without having to own each individual security that’s included in the index. It’s a great and easy for you to take on little risk while being able to invest in a large basket of stocks.
The BMO NASDAQ 100 Equity Hedged to CAD ETF (TSX:ZQQ) is one of my favourite ETFs because it holds a portfolio of the top NASDAQ stocks, including Apple Inc (NASDAQ:AAPL), Alphabet Inc (NASDAQ:GOOG), and Amazon.com, Inc. (NASDAQ:AMZN).
However, the one disadvantage of holding an ETF is that the benefit of some of these high-performing stocks will be more muted and your returns will more closely mirror those of the market, which are generally lower than what you’d earn holding an individual stock. In return for the lower return you are given lower risk, but it may not be worth it.
Let’s take a look at how the NASDAQ 100 ETF has done compared to some of its larger holdings. In the past 12 months, the ETF has risen more than 25% in value, but when compared to the FAANG stocks, it has only outperformed one – Alphabet Inc, which has increased 24% during that time. If you were to simply have invested in Facebook, your returns would have been more than 33%, while Apple would have yielded you a 30% return. Amazon has risen more than 76%, and Netflix has soared 168%.
Ultimately, it depends on how risky you view the stock. Netflix is a bit dangerous given the high multiples it trades at, but Apple is at a much more reasonable valuation and it can provide you with above-average returns. ETFs can be a safe way to get a good return, but often times you can do even better by just picking the right stock to invest in.
