At this time is a really big day for one in every of our favourite indexes — the Nasdaq-100 Index® is popping 40!
Over the previous 4 many years, the index has grown to develop into one of the vital widespread benchmarks for buying and selling and funding merchandise on the earth. Nasdaq-100® shares have a market cap of over $27 trillion as of year-end 2024. Buyers can purchase merchandise that observe the Nasdaq-100, too, utilizing shares, ETFs, choices and futures. (Be aware that there are various different product varieties that observe the Nasdaq-100 together with however not restricted to structured merchandise and annuities. For simplicity, we’re not including different product varieties into the liquidity evaluation past what’s acknowledged within the doc.) Mixed, they commerce over $620 billion of worth every day.
The delivery of the Nasdaq-100
The Nasdaq-100 shouldn’t be confused with the Nasdaq Composite® Index. The Nasdaq Composite Index represents each firm listed on Nasdaq, and was launched in 1971, at the side of the launch of the Nasdaq Inventory Market®.
The Nasdaq-100 was born on Jan. 31, 1985. It’s designed to characterize the highest 100 (non-financial) shares listed on Nasdaq. On the time, the market cap totaled simply $58 billion. At this time, with a lot of the largest shares on the earth within the Nasdaq-100 index, together with AAPL, AMZN, NVDA and GOOG, it provides to a staggering $27 trillion.
Curiously, a separate index, the Nasdaq Monetary-100TM Index additionally began on that date, and it nonetheless exists as we speak.
14% compound returns from over 500 corporations
Since its inception, the Nasdaq-100 is up roughly 20,000% as of Dec. 31, 2024. That’s a powerful 14.25% every year on a compound return foundation in comparison with 11.57% within the S&P 500 over the identical time. It is much more spectacular contemplating that the index was the poster baby for the tech bubble — the place the index fell 83% because the bubble burst. That appears to additionally say lots about the advantages of long-term investing.
Chart 1: Nasdaq-100 Index returns since inception with QQQ efficiency and property
As with all indexes, constituents additionally change over time. IPOs create new corporations, that are added to switch merged and smaller corporations. Over the previous 40 years, the Nasdaq-100 has held greater than 500 completely different corporations at completely different occasions. In truth, solely six of the unique corporations nonetheless stay within the index: Apple, Micron Know-how, Intel, KLA-Tencor, PACCAR and Costco.
Nasdaq is residence for a lot of revolutionary progress corporations
One cause for the outperformance of the Nasdaq-100 Index over time is as a result of a lot of the largest, fast-growing tech shares on the earth listing on Nasdaq.
Nonetheless, the load of Tech shares within the Nasdaq-100 – utilizing the ICB sector classifications – has modified over time. It has ranged from as little as 25% to nearly 70%. And the management from different sectors has modified over time too, with Shopper Companies/Discretionary, Telecommunications and Well being Care all ranked second at completely different factors over time. (Be aware that ICB modified its trade classification system and Nasdaq applied these adjustments beginning in 2021. As part of that change, the Shopper Companies trade was retired, and the Shopper Discretionary trade got here into existence.) Many corporations from these sectors are additionally family names, together with Pepsi, Starbucks, Costco, Honeywell, Gilead, Amgen and Biogen.
Chart 2: Nasdaq-100 Tech sector weights over time
Nasdaq-100 outperforming because the monetary disaster
Because the finish of the monetary disaster, the Nasdaq-100 has had one other interval of outperformance. It’s up greater than 10-fold, beating different U.S. and worldwide indexes. Nonetheless, it’s honest to say issues are completely different this time, as corporations within the Nasdaq-100 have additionally delivered superior earnings progress – thanks lately to spending constructing synthetic intelligence (AI) {hardware} and software program.
Chart 3: Index efficiency because the finish of the monetary disaster aligns with earnings progress
Publicity to the worldwide economic system
The 100 corporations within the Nasdaq-100 could all be U.S. listed, however they really characterize the worldwide economic system.
First, as a result of the Nasdaq-100 contains ADRs, it contains corporations that some indexes take into account as belonging to different international locations. On the finish of 2024, the Nasdaq-100 had 10 “non-U.S.” corporations, with a weight of virtually 4%, within the index – together with ARM, Linde, and AstraZeneca.
As well as, nearly all the businesses within the index have world merchandise and workforces. FactSet experiences that nearly half of the revenues of the Nasdaq-100 are from different international locations, with important revenues coming from Asian international locations.
Chart 4: Nearly 50% of constituent firm incomes are from abroad
An enormous ecosystem of liquidity and buyers
The Nasdaq-100 Index doesn’t simply characterize an enormous proportion of the most important corporations and a benchmark for monetary merchandise on the earth – it additionally has develop into a benchmark with a number of the most liquid buying and selling autos.
The launch of NDX choices (in 1994), NDX futures (in 1996) and the QQQ ETF (in 1999) allowed buyers to seize the returns of the Nasdaq-100 Index. Over time, much more, and extra different investments have been added – from levered ETFs to ETFs utilizing choices for earnings and safety.
Mixed with the buying and selling within the Nasdaq-100 corporations, the entire liquidity in Nasdaq-100 Index provides to greater than $620 billion every day, coming from:
- The 100 shares within the index, which commerce round $173 billion every day.
- Dozens of ETFs use the Nasdaq-100 benchmark. Mixed, these commerce round $23 billion every day.
- Nasdaq-100 Futures commerce $201 billion every day.
- Choices on shares, the Nasdaq-100 Index or Nasdaq-100 monitoring ETFs. These commerce round $113 billion every day on a delta-adjusted publicity foundation.
Chart 5: Liquidity within the Nasdaq-100 ecosystem provides to greater than half a trillion {dollars} of buying and selling per day
Blissful Birthday Nasdaq-100!
It’s an index that has captivated buyers and merchants for years. It contains a number of the best manufacturers within the U.S. Due to that, the trade has created methods for buyers to purchase the Nasdaq-100 portfolio of corporations.
That, in flip, helps buyers finance the innovation these corporations convey to the worldwide economic system, and permits these buyers to take part within the progress of their revenues as merchandise are bought to customers world wide.
It’s actually fairly wonderful that it’s achieved all that in simply 40 years.
