When someone says the Dow is down or the Nasdaq ticked up, do you know what they mean?
These phrases refer to major stock market indices that measure the performance of a range of stocks. One of the best-known indices is the Nasdaq 100, which tracks the performance of 100 of the biggest, most innovative non-financial companies listed on the Nasdaq stock exchange.
The Nasdaq 100 is a strong indicator of how Nasdaq stocks are doing, and following its performance can help you get a better understanding of the market.
What Is the Nasdaq 100 Index?
The Nasdaq is the second-largest stock exchange in the world. Only the New York Stock Exchange (NYSE) is larger. More than 4,000 companies are listed on the Nasdaq, with a market value of over $12 trillion. Compared to stocks listed on the NYSE, stocks listed on the Nasdaq tend to be focused on technology and innovation.
The Nasdaq 100 is an index that tracks the performance of 100 of the largest and most actively-traded stocks on the Nasdaq exchange. The Nasdaq 100 includes both domestic and international companies in a variety of sectors, including:
- Basic materials
- Consumer goods and services
- Healthcare
- Industrial
- Technology
- Telecommunications
- Utilities
What Companies Are in the Nasdaq 100?
Many of the companies in the Nasdaq 100 are well-known, including household names like Apple (AAPL) and Starbucks (SBUX). Companies are selected for the Nasdaq 100 based on a modified market capitalization-weighted index, and they tend to be large-cap stocks.
Some of the best-known companies in the Nasdaq 100 include:
- Biogen (BIIB)
- Exelon Corporation (EXC)
- Honeywell International (HON)
- Intel (INTC)
- Intuit (INTU)
- Moderna (MRNA)
- Netflix (NFLX)
- PepsiCo (PEP)
- Ross Stores (ROST)
- The Kraft Heinz Company (KHC)
- XCel Energy (XEL)
You can view the full list of companies in the Nasdaq 100 on the Nasdaq website.
The methodology to determine the index weighting is complex. However, even though the index includes companies in several industries, technology companies make up about 56% of the index’s weighting.
The weighting of the companies within the index is rebalanced on a quarterly basis in March, June, September and December. And companies can be removed from the index and replaced with other stocks. If that happens, index reconstitutions are announced in early December.
How the Nasdaq 100 Compares to Other Indices
The Nasdaq 100 is just one of many indices that track the performance of the stock market. Two other well-known benchmarks are the S&P 500 and the Dow Jones Industrial Average (DJIA).
Nasdaq 100 vs. S&P 500
The S&P 500 is broader than the Nasdaq. It follows the performance of 500 of the largest companies in a variety of sectors. Unlike the Nasdaq 100, the S&P 500 only tracks companies that are based in the U.S. The S&P 500 is weighted by market capitalization, so each company’s share of the index is based on the overall market value of its outstanding shares.
There is some overlap between the Nasdaq 100 and the S&P 500. For example, Apple appears on both indices. But the weighting of the S&P 500 index is more evenly distributed across sectors, and it isn’t so technology heavy. Just 26% of the S&P 500 is in technology stocks. Other major categories include healthcare, finance and consumer discretionary spending.
Nasdaq 100 vs. Dow Jones Industrial Average
The DJIA is one of the oldest indices. It’s a narrow index that tracks the performance of just 30 companies. Unlike the Nasdaq 100, which includes international stocks, the DJIA only includes large U.S. companies.
The DJIA is made up of blue-chip stocks, meaning established companies with proven track records that have demonstrated steady returns. Despite the limited number of stocks within the index, the DJIA is viewed as a major indicator of the stock market’s state because it tracks major companies in many sectors.
The DJIA includes companies in technology, consumer goods, healthcare and more. Some of the best-known companies within the index include:
- Coca-Cola (KO)
- Goldman Sachs Group (GS)
- UnitedHealth Group (UNH)
- Verizon Communications (VZ)
- Walmart (WMT)
- Walt Disney (DIS)
Nasdaq 100 Performance
Over the past five years, the Nasdaq 100 has grown by 92%. By contrast, the S&P 500 grew by 52%, and the DJIA grew by 37%. Even though the Nasdaq 100 experienced steeper dips than the other indices, it still outperformed them.
How to Invest in the Nasdaq 100
You can’t directly invest in the Nasdaq 100 itself, but there are some ways to mimic the index’s performance.
Invest in Individual Stocks
One way to invest in the Nasdaq 100 is to buy shares of the companies within the index. For example, you can buy shares of Apple or other companies to replicate the index’s holdings. However, this approach can be time-consuming and expensive because you have to research and buy each stock individually, and follow the index’s weighting to manage your portfolio.
Invest in Index Funds
An easier alternative is to invest in index funds. There are mutual funds and exchange-traded funds (ETFs) that track the performance of the Nasdaq 100. These funds may include all of the companies within the Nasdaq 100, or just a representative sample, but they allow you to invest in many companies with a single investment.
Index funds tend to be best for passive investors who are investing for long-term goals, since they tend to have lower fees than other options.
Three popular Nasdaq 100 index funds include the following:
- Invesco QQQ ETF (QQQ): QQQ is the second-most traded ETF in the U.S., and it provides exposure to all of the companies in the Nasdaq 100 index.
- Invesco NASDAQ 100 Index Fund (IVNQX): This mutual fund tracks the results of the Nasdaq 100, providing exposure to all of the companies within the index.
- Victory Nasdaq-100 Index Fund (USNQX): The Victory Nasdaq-100 Index Fund has a $3,000 minimum to invest. It invests at least 80% of its assets in the companies in the Nasdaq 100 index.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
