The exchange-traded fund (ETF) Betashares Nasdaq 100 ETF (ASX: NDQ) continues to make a recovery and has just hit another 52-week high — its second peak in two days. What's going on with the US-focused investment?
For readers unfamiliar with this ETF, it's invested in 100 of the biggest businesses on the NASDAQ stock exchange in North America.
The Betashares Nasdaq 100 ETF is ideal for investors wanting exposure to top US tech names like Apple, Microsoft, Alphabet, Amazon.com, Tesla, Nvidia and Meta Platforms.
What's going on with the NDQ ETF?
As we can see on the unit price above, the Betashares Nasdaq 100 ETF has climbed more than 27% from the start of the year to today. That's significantly stronger than the S&P/ASX 200 Index (ASX: XJO), which has only risen by 3.6%.
Shares in the ETF topped yesterday's milestone of $31.38 with a fresh 52-week high of $31.70 at the time of writing.
Last year, its shares dropped by around 30%, so the ETF still has some way to go to recover from its record heights in December 2021 when it was trading above the $36 mark.
However, it appears that investors are becoming more confident in the collective outlooks of the ETF's holdings.
Remember, the returns of an ETF are dictated by its underlying holdings. If the (biggest) positions in the portfolio do well, then this can help the ETF deliver returns for investors.
Since the start of 2023, we've seen Apple and Microsoft shares climb 37.6% and 30%, respectively. Meanwhile, the Alphabet share price has risen 34% year to date, with shares in Amazon.com soaring 32%.
With these names having the biggest weighting in the portfolio, it would explain why the NDQ ETF has done so well.
What factors might be helping the recovery?
It's understandable why share prices fell last year as interest rates shot higher. Warren Buffett once said about interest rates:
The value of every business, the value of a farm, the value of an apartment house, the value of any economic asset, is 100% sensitive to interest rates because all you are doing in investing is transferring some money to somebody now in exchange for what you expect the stream of money to be, to come in over a period of time, and the higher interest rates are the less that present value is going to be.
So every business by its nature … its intrinsic valuation is 100% sensitive to interest rates.
Central banks sent interest rates higher to lower inflation. It seems to be working, though perhaps not as quickly as hoped.
The April 2023 US consumer price index (CPI) inflation showed 4.9% year-over-year growth, the lowest increase in two years. But, it's still more than the US Federal Reserve would like it to be, so I wouldn't expect any interest rate cuts in the next few months. US retail sales only grew by 0.4% in April, which was less than expected, according to CNBC.
Even so, lower inflation is positive if it means that interest rates don't need to go as high to bring inflation under control. However, there may be a danger that an inflationary mindset is embedded into US society, which wouldn't be ideal for bringing down inflation.
While the NDQ ETF may have been hurt by interest rates, many of the underlying businesses continue to see a good operating performance, which is helping support and grow their valuations. Time will tell if this rally can continue or if the Betashares Nasdaq 100 ETF has gone as far as it can in the shorter term.
