2 Nasdaq 100 ETFs to Watch out for Long Term – The Ultimate Dollar Hedge Strategy! | Rahul Jain

Summary

In this video, Rahul Jen discusses the impressive performance of the NASDAQ 100 index, which has outperformed India's Nifty 50 over the last decade. He highlights the importance of diversifying into US markets for dollar hedging and better risk management, explaining how the NASDAQ 100’s tech-heavy focus offers growth potential. Rahul compares two ETF options for investing in NASDAQ 100—India-based Motilal Oswal and US-based Invesco QQQ—detailing their expense ratios, liquidity, and returns. He also emphasizes the significance of market valuations when considering US investments, urging viewers to stay informed and make wise investment choices.

Takeaways

• 😀 Nifty has risen by 13% in 2024, but the US NASDAQ index has outperformed with a 33% increase as of December 12th.
• 😀 The video does not recommend abandoning investments in Indian stock markets, but stresses the importance of diversifying by investing in the US market.
• 😀 Two main reasons for investing in the US market: a dollar hedge and diversification of investment.
• 😀 Historically, the Indian Rupee has depreciated against the US Dollar, meaning investing in US assets can serve as a hedge against currency devaluation.
• 😀 Over the last 10 years, the NASDAQ 100 index has outperformed Nifty 50 by almost 400%, with the NASDAQ Composite also outperforming Nifty 50.
• 😀 Nifty 50 tracks only 50 companies, while the NASDAQ Composite tracks over 2,500 companies and the NASDAQ 100 tracks the top 100 companies, excluding financials.
• 😀 Investing in US markets provides diversification benefits, as the correlation between Nifty and Nifty 500 is over 98%, meaning they move similarly, while the correlation with NASDAQ is just 24.1%.
• 😀 The NASDAQ 100 index is heavily invested in the technology sector (59%) and consumer discretionary sector (18%), with major companies like Apple, Microsoft, and Nvidia.
• 😀 Indian investors can invest in NASDAQ 100 through ETFs such as Motilal Oswal's NASDAQ 100 ETF (India-based) or the Invesco QQQ Trust (US-based).
• 😀 The expense ratio of Motilal Oswal's ETF is higher (0.59%) than Invesco's ETF (0.20%), leading to slightly lower returns in the Indian ETF compared to the US-based ETF, but both have high liquidity.

Q & A

What is the purpose of investing in the U.S. stock market as discussed in the video?

The purpose of investing in the U.S. stock market is primarily for diversification and dollar hedge. Diversification helps reduce risks by investing in a market that behaves differently from the Indian market, while a dollar hedge protects against the depreciation of the Indian Rupee against the U.S. Dollar.

What is the performance comparison between the Nifty 50 and the NASDAQ 100 over the past 10 years?

Over the past 10 years, the Nifty 50 has grown by about 200%, while the NASDAQ Composite increased by 36%. The NASDAQ 100, excluding financial companies, has performed significantly better, with a rise of 400%.

Why is it not advisable to solely chase past returns when investing?

Chasing past returns can be misleading because past performance does not guarantee future results. Investment decisions should be based on current valuations, market conditions, and long-term goals rather than historical performance alone.

What is the difference between the Nifty 50 and Nifty 500 in terms of diversification?

The Nifty 50 and Nifty 500 have a high correlation of 98.2%, meaning investing in both doesn’t significantly reduce risk. True diversification requires investing in markets or indices with a lower correlation, such as the NASDAQ, which has only a 24.1% correlation with Nifty.

What is the dollar hedge, and how does it benefit Indian investors investing in U.S. markets?

A dollar hedge refers to the protection against the depreciation of the Indian Rupee against the U.S. Dollar. Over time, the Rupee has lost value relative to the U.S. Dollar, so investing in U.S. markets, like NASDAQ, can lead to better returns for Indian investors due to the currency appreciation.

How does the sector allocation in NASDAQ 100 differ from that in Nifty 50?

NASDAQ 100 has a large focus on technology (59%) and consumer discretionary (18%), with companies like Apple, Microsoft, and Amazon. In contrast, Nifty 50 has a much larger allocation in financial services (34%) and less exposure to technology and consumer discretionary sectors.

What are the key differences between U.S.-based ETFs and Indian-based ETFs for investing in the NASDAQ 100?

U.S.-based ETFs, like the Invesco QQQ Trust, offer lower expense ratios (around 0.20%) and are more liquid but require opening a U.S. brokerage account. Indian-based ETFs, such as Motilal Oswal NASDAQ 100 ETF, are traded on Indian exchanges, making them easier for Indian investors to access, but they have higher expense ratios (around 0.59%) and may have tracking errors.

How do the expense ratios of U.S.-based and Indian-based ETFs compare?

U.S.-based ETFs like Invesco QQQ Trust have a much lower expense ratio (around 0.20%) compared to Indian-based ETFs like Motilal Oswal’s NASDAQ 100 ETF, which has an expense ratio of 0.59%. This difference impacts the returns, with the U.S.-based ETF typically offering better tracking of the index.

What is the liquidity difference between U.S.-based ETFs and Indian-based ETFs?

U.S.-based ETFs like Invesco QQQ Trust are highly liquid, with daily trading volumes in the millions of shares. In comparison, Indian-based ETFs like Motilal Oswal NASDAQ 100 ETF have lower volumes, making them less liquid, though still fairly liquid for Indian investors.

What is the significance of the current P/E ratio of NASDAQ 100, and how does it affect investment decisions?

The NASDAQ 100’s P/E ratio is at an all-time high of 37.3, which is significantly above the historical range of 20 to 30. This suggests that the market may be overvalued, and investors should be cautious about entering at these high valuations, as future returns may be lower.