ETFs In Focus On The Nasdaq Rally

The tech-heavy Nasdaqclosed at an all-time record high on Thursday for the second consecutive session as investors continued to cheer the Fed’s no-rate-hike decision. Moreover, the continuing rally in biotech stocks on merger and acquisition news also gave a significant boost to the index. For the first time since January, iShares Nasdaq Biotechnology IBB, which tracks the performance of biotech stocks, closed above the resistance level of 300. Meanwhile, strong gains in Apple Inc. (NASDAQ:AAPL) played a huge role in the Nasdaq rally.

Fed’s No-Hike Boosted Nasdaq

Like the other major U.S. benchmarks, Nasdaq also registered healthy gains over the past couple of sessions after the Fed decided to keep the key interest rate unchanged. After concluding its two-day policy meeting on Wednesday, the Federal Open Market Committee (FOMC) stated that the argument for a rate hike “has strengthened.” Yet, the central bank will wait for “further evidence of continued progress” before raising rates (read: Fed Plays Safe As Expected, Outlook Positive: ETFs to Buy).

Though Fed Chair Janet Yellen indicated that “one increase in the federal funds rate will be appropriate this year,” the projection of rate hikes declined significantly. Notably, policy makers now envisage two rate hikes in 2017, down from the June median projection of three, as per Bloomberg. It also cut its long-term target for fed funds to 2.9% from 3%.

Biotech Rally

After its acquisition of Vitae Pharmaceuticals for $639-million, Allergan Plc (NYSE:AGN) announced a deal worth $1.695 billion to acquire Tobira Therapeutics, Inc. (NASDAQ:TBRA) . Tobira Therapeutics’ shares soared 720.9% on Tuesday following the announcement, which also led IBB to register strong gains. Over the past five days, IBB gained 4.1% mostly due to the deal (read: Biotech ETFs in Focus on Tobira Therapeutics' Massive Gain).

New of other mergers and acquisitions in this space also gave a boost to the sector. Along with Tobira Therapeutics, Allergan announced that it will buy privately held biopharma company Akarna for an upfront payment of around $50 million. Separately, rumours that Clovis Oncology may be acquired by Eli Lilly helped the biotech sector to finish higher.

Strong Gains in Apple

Last week, tech behemoth Apple registered the highest four-day gain in more than two years. Strong demand for the newly released iPhone 7 Plus and iPhone 7 played a huge role in boosting the company. According to Sprint, iPhone 7 Plus and iPhone 7’s preorders during the first three days following their release were up 375% compared with preorders for the iPhone 6S series after its release last year.

Weakness in Samsung (KS:005930), which is one of the biggest competitors of Apple in the smartphone market, also had a positive impact on the company’s price performance. The Korean giant recently had to recall 2.5 million Samsung Galaxy Note 7 devices due to defective batteries (read: Catch Apple's Rally with These Top-Ranked Tech ETFs).

ETFs to Watch

In this section, we have highlighted three ETFs that have significant exposure to stocks that are listed on the Nasdaq and gained significantly from the rally in the index.

PowerShares QQQ ETF QQQ

This ETF follows the Nasdaq-100 Index, holding 105 stocks in its basket. Like ONEQ, Apple takes the top spot with nearly 10.9% share of assets, followed by Microsoft (NASDAQ:MSFT) (8%) and Amazon (NASDAQ:AMZN) (6.7%). The product is quite popular with nearly $39.7 billion of AUM and a solid volume of around 23 million shares a day. It charges investors 20 bps in fees per year. The fund gained 1.1% and 9.5% over the past five sessions and three-month period, respectively. It has a Zacks ETF Rank #3 (Hold), with a Medium risk outlook (read: ETFs to Watch as Nasdaq Hits All-Time High).

First Trust NASDAQ-100 Equal Wtd ETF QQEW

QQEW looks to replicate the performance of the NASDAQ-100 Equal Weighted index. The fund invests $374.2 million of its assets in 105 stocks. No stock accounts for more than 1.07% of the basket. The fund appears heavily invested in the Technology sector with about 36% allocation, followed by about 29.5% in Consumer Services and 15.1% in Health Care. The fund charges 60 bps in annual fees. The fund returned 1.4% and 9.1% over the past five sessions and past three-month period, respectively. The fund presently carries a Zacks ETF Rank #3 with a Medium risk outlook.

Fidelity Nasdaq Composite Tr Stk ETF ONEQ

This ETF follows the Nasdaq Composite Index, holding 2001 stocks in the basket. Apple takes the top spot with nearly 7.6% share of assets, followed by Microsoft (5.6%) and Amazon (4.7%). The product has amassed $707.5 million in its asset base and trades in moderate volume of around 18,000 shares a day. It charges investors 21 bps in fees per year. The fund returned 1.9% and 9% over the past five sessions and past three-month period, respectively.

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