Invesco has unveiled two new ETFs in Europe targeting stocks listed on Nasdaq. The ETFs provide exposure to large or mid-cap growth companies listed on Nasdaq. The Invesco Nasdaq-100 Swap UCITS ETF provides synthetically replicated exposure to the Nasdaq 100, one of the world’s foremost large-cap growth indices.
The fund complements the issuer’s physically replicating equivalent on the same index.
Invesco’s second launch is the Invesco Nasdaq Next Generation 100 UCITS ETF. This fund targets mid-cap companies directly outside of the Nasdaq 100.
Synthetic Nasdaq 100
Widely perceived as a proxy for innovative growth stocks, the Nasdaq 100 consists of 100 of the largest US and international non-financial companies by market capitalization listed on Nasdaq, subject to various diversification requirements.
The index reflects companies across major industry groups including computer hardware and software, communications, retail/wholesale trade, and biotechnology.
The index is known for being ‘tech-heavy’, as is evidenced the current make-up of its largest ten holdings: Apple (11.1%), Microsoft (9.7%), Amazon.com (8.5%), Alphabet (7.1%), Tesla (4.1%), Facebook (3.7%), Nvidia (2.6%), Paypal (2.3%), Comcast (2.1%), and Netflix (2.0%).
Invesco uses the same replication method for the Invesco Nasdaq-100 Swap UCITS ETF as it does with its other synthetic products – the fund holds a basket of high-quality securities to provide most of the return and engages in swap contracts to improve tracking and performance.
The counterparties to the swaps – typically large banks and other financial institutions – agree to pay any difference between the returns of the basket of securities and the index. To reduce risk, swaps are typically marked to market on a daily basis.
Although synthetically replicating ETFs were once firmly out of favour, European investors are increasingly turning to the structure for mainstream US equity exposures due to their ability to provide a tighter tracking experience as well as a potential tax enhancement owing to their circumvention of withholding tax, though this is less relevant for growth indices such as the Nasdaq 100 where the dividend yield is very slim.
The Invesco Nasdaq-100 Swap UCITS ETF comes with an expense ratio of 0.20%, which is ten basis points cheaper than its physically replicating counterpart, EQQQ. The price tag matches the cost of Europe’s cheapest Nasdaq 100 ETF, the Xtrackers Nasdaq 100 UCITS ETF (XNAS LN), which was unveiled by DWS in January.
Chris Mellor, Head of EMEA Equity and Commodity ETF Product Management at Invesco, said: “With the new EQQS ETF, we now offer low-cost physical and synthetic ETFs on this important large-cap growth index. Investors looking for efficient exposure just need to choose which replication method best suits their individual preferences.”
The fund has listed on London Stock Exchange in US dollar (EQQS LN) and pound sterling (EQSG LN) share classes.
Nasdaq Next Generation
The Invesco Nasdaq Next Generation 100 UCITS ETF provides exposure to mid-cap growth companies by tracking the Nasdaq Next Generation 100 Index using direct physical replication.
The index comprises the largest 100 Nasdaq-listed companies outside of the Nasdaq 100. As with the Nasdaq 100, the index does not contain financial securities such as banking and investment companies.
Constituents are weighted by market capitalization. The index is reconstituted annually and rebalanced quarterly.
The largest sectors currently represented within the index are technology (40.9%), health care (18.8%), consumer services (16.0%), consumer discretionary (14.7%), and industrials (7.9%). The index is well-diversified at the stock level with the largest constituent, ViacomCBS, commanding a weight of just 2.5%.
The ETF comes with an expense ratio of 0.25%. Income is capitalized within the portfolio.
Invesco rolled out a US-domiciled ETF tracking the same index in October of last year. Listed on Nasdaq, the Invesco Nasdaq Next Gen 100 ETF (QQQJ US) has already accumulated over $1.1bn in assets, highlighting the strong demand for exposure to this segment.
Gary Buxton, Head of EMEA ETFs and Indexed Strategies at Invesco, commented: “We have worked with Nasdaq for more than 20 years and have built a long-term track record of delivering efficient and targeted exposure to the Nasdaq 100 Index. Now, we are delighted to bring to the European market the first ETF capturing the opportunities of tomorrow’s most innovative companies.”
Sean Wasserman, Vice President and Global Head of Index & Advisor Solutions at Nasdaq, added: “By definition, innovators never stand still and Nasdaq indexes are no different. The Nasdaq Next Generation 100 is part of our expansion of the Nasdaq-100 ecosystem, which broadens the universe of tracking products to come to market and increases the accessibility for the investing public. Today, over a third of the Nasdaq-100 companies ‘graduated’ from the Nasdaq Next Generation 100, truly representing companies at the forefront of innovation. We are excited that Invesco is launching this ETF to provide access to the next generation of innovators.”
Chris Mellor said: “One of the biggest growth drivers of Nasdaq-listed companies tends to be their level of spending on research and development. By reinvesting a significant amount of their current cash flow back into the company to fund new ideas, they have shown the ability to grow revenues and earnings faster than companies that spend less. Plus, this is not just about technology companies. The next generation segment also provides significant exposure to leading-edge innovators in health care, communications, industrials, and several other sectors.”
The fund has listed on London Stock Exchange in US dollars (EQQJ LN) and pound sterling (EQJS LN) as well as on Deutsche Börse in euros (EQQJ GY).
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