When Performance Matters: Nasdaq-100 vs. S&P 500, Fourth Quarter '21
The Nasdaq-100 and S&P 500 are two of the most popular equity indexes in the US. The Nasdaq-100 is heavily allocated towards top-performing industries such as Technology, Consumer Discretionary, and Health Care, which have helped the Nasdaq-100 outperform the S&P 500 by a wide margin between Dec. 31, 2007 and Dec. 31, 2021. Below is a comparison of annual total returns - which reinvest dividends - between each index. The Nasdaq-100 TR Index has outperformed 11 out of the 14 full calendar years in our study, with a minimal underperformance of 1.20% in 2021. (On a price-return basis, 2021 was a near-tie, with the Nasdaq-100 underperforming by only 0.26%).
Historical Performance
Despite recent overall market volatility, the Nasdaq-100 TR Index has maintained cumulative total returns of approximately 2.5 times that of the S&P500 TR Index.
Rolling Volatility (One Year)
One year rolling volatility (calculated by taking the standard deviation of daily returns, annualized) of the Nasdaq-100 has been modestly elevated vs. the S&P 500, averaging only 2.54% higher between Dec. 31, 2009 and Dec. 31, 2021. The overall correlation of daily returns was 93% - rather impressive given the concentrated exposure of the Nasdaq-100 towards Technology.
Current Industry Weights
We can see important differences in sector exposures between the Nasdaq-100 and the S&P 500 as of Dec. 31, 2021. As mentioned previously, the outsized allocations to both Technology and Consumer Discretionary have helped propel the Nasdaq-100 Index to multiple new all-time highs in 2021, most recently in mid-November.
Conclusion
The Nasdaq-100 finished the fourth quarter of 2021 with a gain of 11.28% compared to the S&P 500 gain of 11.02%, narrowing the full-year underperformance gap to only 120 bps. While notable, this pales in comparison to 2020's incredible 3,000+ bps of outperformance. The Nasdaq-100 is heavily allocated towards top-performing industries such as Technology, Consumer Discretionary, and Health Care. The long-run growth trend of companies in these industries has remained strong in spite of the widespread economic disruption from the COVID-19 pandemic. Given the way technology is influencing the world and making companies more efficient, there is a strong possibility that this trend continues into the future despite occasional interruption.
Sources: Nasdaq Indexes, Bloomberg
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