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Invesco has launched an ETF tracking a second tier of stocks on the US Nasdaq index

A new exchange-traded fund has been launched by investment group Invesco that aims to unearth the next generation of winners in the US stock market. Investors might want to view it as the US equivalent of the FTSE 250 mid cap index, containing established companies with material cash flows that potentially offer greater growth prospects that their larger cap peers.

Invesco Nasdaq Next Gen 100 (EQJS) follows the Nasdaq Next Generation 100 index, which tracks the next 100 companies below the top 100 of the Nasdaq – the latter considered to be the key benchmark for US tech stocks. Constituents of the Next Gen index include cybersecurity firm Crowdstrike, GPS tech and watch maker Garmin and online travel platform Expedia.

When the index was launched last August, Nasdaq said back-tested data showed the Next Gen index would have generated a 271% return over 10 years. While not as good as the 507% generated by the Nasdaq 100, it was still ahead of the 106% return generated by the S&P 400 Mid Cap index and 209% from the Russell Mid Cap Growth index over the same period.

The FTSE 250 has outperformed the FTSE 100 over the past decade. On a total return basis to 10 May 2021, the FTSE 250 has returned 149% according to FE Analytics, compared to 74% from the FTSE 100.

Potential candidates to graduate from the Nasdaq Next Gen index in the coming years to the top Nasdaq 100 index include streaming platform Roku, which in the first quarter of 2021 recorded year-on-year revenue growth of 79%, and arts and crafts website Etsy which recorded 141% revenue growth in the same period.

While both Roku and Etsy are viewed as mid-caps in America, both would be considered large caps in the UK with market caps of $43 billion and $20 billion respectively. FTSE 100 stock AstraZeneca also features in the Nasdaq Nex Gen index thanks to having a secondary US listing.

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