The Nasdaq 100 Index is a prestigious collection of the 100 largest, most actively traded companies listed on the Nasdaq stock exchange. This elite index includes companies from diverse industries such as manufacturing, technology, healthcare, and more, excluding entities in the financial sector, such as commercial and investment banks.
Key Takeaways
- The Nasdaq 100 Index represents the 100 largest companies by modified market capitalization trading on Nasdaq exchanges.
- It includes companies from various sectors like basic materials, consumer discretionary spending, consumer staples, healthcare, industrials, technology, telecommunications, and utilities, excluding financial firms.
- Companies in the index are some of the world’s giants, like Microsoft, Apple, Amazon, Tesla, and Meta.
- Although direct investment in the Nasdaq 100 is not possible, investors can gain exposure through exchange-traded funds (ETFs), mutual funds, futures and options, and annuities.
Understanding the Nasdaq 100 Index
To be included in the Nasdaq 100 Index, securities must be listed exclusively on a Nasdaq exchange. These can be common stocks, ordinary shares, American depositary receipts, and tracking stocks, provided they are nonfinancial and have traded for at least three months on an exchange.
The Nasdaq 100’s liquidity criteria necessitate a minimum average daily trading volume of 200,000 shares over the previous three calendar months. There is no market cap requirement.
The Nasdaq 100 Index employs a modified capitalization method, weighting the individual items according to their market cap, limiting the influence of the biggest companies while balancing the index among its constituents.
Nasdaq reviews and adjusts the index composition each quarter to meet specific criteria.
Composition of the Nasdaq 100 Index
The Nasdaq 100 Index consists of assets across several sectors, as of September 30, 2023, excluding financial services. Here’s the sector breakdown:
- Technology (57.1%)
- Consumer Discretionary (18.73%)
- Healthcare (7.12%)
- Telecommunications (5.48%)
- Industrials (4.87%)
- Consumer Staples (4.23%)
- Utilities (1.24%)
- Basic Materials & Energy (0.96%)
Top 10 companies by weight as of September 30, 2023:
- Apple Inc. (10.82%)
- Microsoft (9.48%)
- Amazon.com (5.30%)
- NVIDIA (4.34%)
- Meta Platforms (3.78%)
- Tesla (3.21%)
- Google (A shares) (3.14%)
- Google (C shares) (3.09%)
- Broadcom (2.97%)
- Costco Wholesale (2.17%)
Special Rebalancing
On July 17, 2023, Nasdaq undertook a special rebalancing of the Nasdaq 100 Index, prompted by an overconcentration in the index’s large companies. A rebalance is required if companies with weights above 4.5% exceed a collective 48% of the index.
This special rebalancing was a response to a tech stock rally that increased the top five companies’ collective weight (Microsoft, Apple, Nvidia, Amazon, and Tesla) beyond the 48% limit. By rebalancing, Nasdaq reduced their weights and increased others like Alphabet, Meta Platforms, Netflix, and Costco.
This rebalance influences the index’s performance and volatility, as investors usually adjust portfolios to align with the new weights, though these changes are often temporary and do not impact the fundamentals of listed companies.
Investing in the Nasdaq 100 Index
The Nasdaq 100 index, while non-investable directly, provides numerous avenues for exposure. Investors can access it through exchange-traded funds (ETFs), mutual funds, futures, options, or annuities. ETFs are a straightforward and lower-risk option for the average investor.
What Makes Up the Nasdaq 100?
The Nasdaq 100 comprises the 100 largest companies by modified market capitalization trading on Nasdaq exchanges, hailing from sectors such as basic materials, consumer discretionary, consumer staples, healthcare, industrials, technology, telecommunications, and utilities.
The Purpose of the Nasdaq 100
The Nasdaq 100 tracks some of the most significant large-cap companies globally, serving as an economic barometer and illustrating sectoral performance trends, thus assisting investors in making informed decisions.
What is Nasdaq?
Nasdaq stands for the National Association of Securities Dealers Automated Quotations. Established in 1971, Nasdaq was the first electronic stock market and has since become recognized for its technology company listings. It operates the Nasdaq Stock Market and Nasdaq Nordic, encompassing stock exchanges in Helsinki, Copenhagen, Stockholm, and Iceland.
Differentiating Between Nasdaq 100 and S&P 500
The Nasdaq 100 and the S&P 500 are leading stock market indices but have notable distinctions. The Nasdaq 100 focuses on 100 companies, including some foreign ones, listed exclusively on Nasdaq exchanges and excludes financial companies. Meanwhile, the S&P 500 includes 500 exclusively U.S. companies from various sectors and exchanges.
Final Thoughts
The Nasdaq 100 Index offers a dynamic look at the largest nonfinancial companies on Nasdaq exchanges, providing widespread market exposure across diverse sectors. For investors seeking a varied portfolio of some of the world’s largest enterprises, the Nasdaq 100 provides numerous options via ETFs, mutual funds, futures, and options. By understanding the index’s composition and rebalancing processes, investors can better navigate the financial market landscape.
References
- Nasdaq. “Index Methodology: Nasdaq-100 Index”, Pages 1-2.
- Nasdaq. “Index Methodology: Nasdaq-100 Index”, Pages 4-5.
- Nasdaq. “Index Methodology: Nasdaq-100 Index”, Pages 3-5.
- Nasdaq. “Nasdaq-100 Companies”.
- Nasdaq. “NASDAQ-100 Index Overview”, Page 1.
- Reuters. “What Is Nasdaq’s Special Rebalancing and Its Impact?”
- Marketwatch. “Nasdaq Is Making a Big Change to Its Most Popular Index. Here’s How It Might Impact Your Portfolio”.
- Nasdaq. “How to Invest in the Nasdaq-100”.
- Nasdaq. “Nasdaq-100 Index”.
- S&P Dow Jones Indices. “S&P 500”.
