The Nasdaq and the NYSE are stock exchanges that trade securities. Nasdaq stands for the National Association of Securities Dealers Automated Quotation, and NYSE stands for the New York Stock Exchange.
Both the Nasdaq and NYSE are publicly traded companies, and as such, investors can buy shares of each on public exchanges. The NYSE is owned by Intercontinental Exchange, Inc., which issues shares under the ticker symbol (NYSE: ICE). The Nasdaq is owned by Nasdaq, Inc., and its shares trade under the ticker symbol (Nasdaq: NDAQ).
Investors can’t buy an index per se, meaning investors who want to invest in the holdings of the NYSE or Nasdaq can buy exchange traded funds (ETFs) that track these indexes. This article reviews two of the most widely-held ETFs that track the Nasdaq and Dow Jones Industrial Index (DJIA).
- The New York Stock Exchange and the Nasdaq are both exchanges that trade securities.
- The New York Stock Exchange has been around since the late 18th century, and the Nasdaq was founded in 1971.
- Because the two exchanges are both publicly-traded, investors can buy shares of the two exchanges, but can’t buy the holdings through the index.
- For investors that want to invest in the holdings of the NYSE or Nasdaq, there are exchange traded funds (ETFs) that track these indexes.
- Two popular ETFs include the Invesco (QQQ), which tracks the Nasdaq, and the SPDR (DIA), which tracks the Dow Jones Industrial Index (DJIA).
The Nasdaq was founded in 1971 to enable traders to trade securities on a speedy, transparent computerized system. The exchange split from the National Association of Securities Dealers in 2006. The exchange is headquartered in the United States and operates 26 markets—primarily equities, and also includes options, fixed income, derivatives, and commodities.
New York Stock Exchange (NYSE)
The New York Stock Exchange was founded in roughly 1792 when twenty four brokers signed what is known as the Buttonwood Agreement, setting some agreed-upon ground rules for securities trading. It is based in New York City and is the largest equity-based exchange in the world.
As with the decision to invest in any company, research into the business must be undertaken first, with an investor examining fundamental and technical characteristics of the company before placing an order.
How to Pick Stock
Just because the Nasdaq and NYSE are publicly traded, as such can be invested in, does not necessarily mean investors should invest in them. Each company needs to be evaluated on its own merits and compared against each investor’s unique needs, goals, and risk tolerance.
Before buying a stock, investors should examine a company’s balance sheet, income statement, cash flow statement, and footnotes. These can be found in the company’s annual report, also called its 10-K. The publication of 10-K reports is mandated by the U.S. Securities and Exchange Commission (SEC). Investors can find them on the SEC’s public database, called EDGAR.
Once a stock has been analyzed, investors need to determine the potential return and volatility of the stock and whether that fits his or her particular profile. Another factor is how the stock fits in a portfolio. Most investors seek a diversified portfolio, hoping to achieve a target return while taking on the least amount of risk.
Having a more concentrated portfolio increased the risk of a big loss, but it also increases the total return potential. A stock’s risk and return profile affects the total portfolio’s risk and return profile, though by moving in the opposite direction of other holdings, a risky stock has the potential to make an overall portfolio less risky.
The Nasdaq has more than 4,000 company listings, while the New York Stock Exchange has approximately 2,400 company listings.
Individual Stocks vs. Index Funds
Modern Portfolio Theory (MPT) advocates diversification as a source of risk reduction. One easy way to diversify a portfolio is to invest in a mutual fund that tracks a larger index fund. It can be difficult to properly diversify a portfolio when picking stocks one at a time.
Although many ETFs have stocks from the NYSE, the DIA ETF tracks the Dow Jones Industrial Average, one of the most widely followed indexes at the NYSE. The Nasdaq is tracked via the QQQ ETF, which contains some of the most widely held stocks on the Nasdaq. Below are the financial details and performance for each ETF.
SPDR Dow Jones Industrial Average ETF Trust (DIA)
The SPDR Dow Jones Industrial Average ETF Trust (DIA) tracks companies in the Dow Jones Industrial Average, which are chosen by a committee of editors from the Wall Street Journal. The 30 companies within the index must be substantial and represent a significant amount of U.S. economic activity. The DIA ETF has an expense ratio of .16% and nearly $30 billion in assets under management (AUM).
Some of the sectors that are represented in the fund as of Jan. 20, 2022, along with their weightings, include:
- Information Technology: 21.73%
- Financials: 15.60%
- Health Care: 17.81%
- Industrials: 15.44%
- Consumer Discretionary: 14.15%
- Consumer Staples: 7.92%
- Communication Services: 3.82%
- Energy: 2.44%
- Materials: 1.10%
Top Ten Holdings
Below are the top ten stocks within the DIA ranked by the percentage of their portfolio weighting.
|DJIA ETF’s Top 10 Holdings (as of January 20, 2022)|
|Holding (Company)||% DIA Portfolio Weight|
|UnitedHealth Group Incorporated||8.79%|
|Home Depot Inc.||6.63%|
|Goldman Sachs Group Inc.||6.61%|
|Visa Inc. Class A||4.07%|
Below is the performance of the SPDR Dow Jones Industrial Average ETF Trust (DIA) over the last few years as of Jan. 20, 2022.
|Annualized Performance of DIA ETF versus DJIA Index|
|DIA ETF||DJIA Index|
The Invesco QQQ (QQQ) tracks stocks within the Nasdaq-100 Index and is one of the most popular ETFs. The Index includes 100 of the largest domestic and international nonfinancial companies that are listed on the Nasdaq Stock Market. The QQQ ETF has an expense ratio of .20%.
QQQ has just over half of its holdings that belong to the information technology sector, with more than 85% of the ETF being from three sectors, meaning it’s not as diversified as other ETFs. Some of the sectors that are represented in the fund as of Jan. 21, 2022, along with their weightings, include:
- Information Technology: 50.35%
- Communication Services: 18.52%
- Consumer Discretionary: 15.98%
- Consumer Staples: 5.53%
- Health Care: 5.48%
- Industrials: 3.11%
- Utilities: 1.03%
Top Ten Holdings
Below are the top ten stocks within the QQQ ranked by the percentage of their portfolio weighting.
|QQQ ETF’s Top 10 Holdings (as of Jan. 21, 2022)|
|Holding (Company)||% QQQ Portfolio Weight|
|Meta Platforms Inc.||4.84%|
|Alphabet Inc. GOOG||3.73%|
|Alphabet Inc. GOOGL||3.54%|
|Cisco Systems Inc.||1.79%|
Below is the performance of the Invesco QQQ over the last few years as of Jan. 21, 2022.
|Annualized Performance of QQQ ETF versus Nasdaq-100 Index|
|QQQ ETF||Nasdaq-100 Index|