Launched in 1985, the Nasdaq-100 (NDX) is one of the leading large-cap growth indexes. NDX is a modified capitalization-weighted index that tracks 100 of the largest non-financial companies listed on the Nasdaq Stock Market. The companies that are part of the Nasdaq-100 are not only considered to be among the most innovative but also consistently rank highly in terms of their fundamental growth, global reach, diversification, and liquidity.
Here are some of the top reasons that the Nasdaq-100 Index matters to investors.
1. Top Global Brands
The constituents of the Nasdaq-100 are some of the biggest global brands. Currently, seven of the 10 largest companies in the world in terms of market capitalization are listed on Nasdaq and are a part of NDX. In terms of brand value, a report on the best global brands in 2023 by Interbrand lists nine NDX companies among the top 20.
Companies that make up the Nasdaq-100 play key roles in our day-to-day activities. Be it sipping a coffee at Starbucks (SBUX), working on tasks in Microsoft Office (MSFT), editing an Adobe PDF (ADBE), attending a Zoom meeting (ZM), consulting for Invisalign (ALGN), watching YouTube (GOOG, GOOGL) or Netflix (NFLX), shopping on Amazon (AMZN) or eBay (EBAY), calling someone on your iPhone (AAPL), checking an Airbnb (ABNB) for a vacation or using Booking.com (BKNG) to book tickets, or posting pictures on Instagram (META), Nasdaq-100 companies and their products and services touch us in one way or another every day.
2. Leading Innovation
The Nasdaq-100 comprises some of the world’s largest non-financial companies from popular sectors like Technology, Healthcare, Consumer Discretionary , and Industrials. These companies are leading innovation across different domains, such as autonomous vehicles, wearable technologies, satellites, robotics, quantum computing, smart homes, artificial intelligence, data analytics, cybersecurity, and cloud computing. NDX also offers some of the top biotechnology and pharmaceutical companies such as Amgen (AMGN), Gilead Sciences (GILD), Moderna (MRNA), Regeneron Pharmaceuticals (REGN), Vertex Pharmaceuticals (VRTX), Biogen (BIIB) and AstraZeneca (AZN), all of which are leaders in health care and biotech-related research and development.
According to a BCG report, the top 50 most innovative companies have outperformed the MSCI World Index on a total return basis by 3.3 percentage points per year since 2005. The most recent list of companies published includes Apple (AAPL), Tesla (TSLA), Amazon (AMZN), Alphabet (GOOG, GOOGL), Microsoft (MSFT), and Moderna (MRNA).
3. Performance
In the U.S., the S&P 500 and Nasdaq-100 are two of the most well-known equity indexes. Performance for these indexes over the last 15+ years (between Dec 31, 2007, and Sep 30, 2023) shows that the Nasdaq-100 outperformed the S&P 500 by a wide margin. During this period, NDX posted cumulative returns of 726% versus 301% for S&P 500. In terms of annualized returns, NDX registered 14.3% returns as compared to 9.2% for S&P 500 with an annualized volatility of 23% versus 21%. Overall, the Nasdaq-100 has outperformed 11 out of the last 15 calendar years, and on pace to do so by a wide margin in 2023. The Nasdaq-100 is heavily allocated towards growth stocks, which took a beating as interest rates began to rise.
4. Growing Dividends
Regular dividends are generally a sign of good financial health since dividends are derived from a company's profits. From an investment perspective, on average, dividend-paying stocks tend to be less volatile than non-dividend-paying stocks. At present, only half of Nasdaq-100 companies pay dividends. By contrast, 90% and 80% of companies constituting the Dow Jones Industrial Average (DJIA) and S&P 500 (SPX) pay dividends. This results in a lower aggregate dividend yield for Nasdaq-100 compared to DJIA and S&P 500. However, the pace of growth of the dividend yield is noteworthy. Back in 2003, the dividend yield for NDX was 0.18%, which was minuscule compared to indexes such as the SPX and DJIA, which had dividend yields of 1.55% and 1.98%, respectively. However, by June 2023, the dividend yield of NDX grew to 0.84% compared to 1.59% for DJIA and 1.99% for SPX.
5. ESG Commitment
Focus on Environment, Social, and Governance (ESG) factors while investing has been increasing in the recent years. Today, ESG scores and data points are arguably some of the most important non-financial metrics to identify material risks and growth opportunities. While the Nasdaq-100 is not a dedicated ESG index, the companies that make up the index have a strong foundation in ESG. This is reflective of the fact that 93 of the Nasdaq-100 companies get filtered to be a part of the Nasdaq-100 ESG Index, which is designed to measure the performance of the companies in the Nasdaq-100 that meet specific ESG criteria. On the other hand, only 318 of the S&P 500 companies (63.6%) are a part of the S&P 500 ESG index. If we look deeper, companies within NDX have set ambitious goals on recycling and reuse, better governance, diversity targets, adoption of renewables, and climate change, among other things.
An exchange traded fund that tracks the Nasdaq-100 is the simplest way to gain access to the index. Investors in the U.S. can access the index through QQQ/QQQM.
Disclaimer: The author has no position in any stocks mentioned. Investors should consider the above information not as a de facto recommendation, but as an idea for further consideration. The report has been carefully prepared, and any exclusions or errors in it are totally unintentional. Links to the data and reports mentioned are given.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Prableen Bajpai
Prableen Bajpai is the founder of FinFix Research and Analytics which is an all women financial research and wealth management firm. She holds a bachelor (honours) and master’s degree in economics with a major in econometrics and macroeconomics. Prableen is a Chartered Financial Analyst (CFA, ICFAI) and a CFP®.
Read Prableen's Bio