Nasdaq-100 Index® Celebrates 40 Years of | U.S. Markets

At present is a very special occasion for one of our favourite indexes — the Nasdaq-100 Index® is popping 40!

Over the previous 4 many years, the index has grown to turn out to be one of the most well-liked benchmarks for trading and investment merchandise within the world. Nasdaq-100® shares have a market cap of over $27 trillion as of year-end 2024. Buyers can buy merchandise that monitor the Nasdaq-100, too, utilizing shares, ETFs, choices and futures. (Observe that there are numerous different product sorts that monitor the Nasdaq-100 together with however not restricted to structured merchandise and annuities. For simplicity, we’re not including different product sorts into the liquidity evaluation past what’s said within the doc.) Mixed, they trade over $620 billion of worth every day.  

The beginning of the Nasdaq-100

The Nasdaq-100 shouldn’t be confused with the Nasdaq Composite® Index. The Nasdaq Composite Index represents each company listed on Nasdaq, and was launched in 1971, along side the launch of the Nasdaq Inventory Market®.

The Nasdaq-100 was born on Jan. 31, 1985. It’s designed to symbolize the highest 100 (non-financial) shares listed on Nasdaq. On the time, the market cap totaled simply $58 billion. At present, with most of the most important shares within the world 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-100^TM Index additionally began on that date, and it nonetheless exists at the moment. 

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 an spectacular 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 even more spectacular contemplating that the index was the poster youngster for the tech bubble — the place the index fell 83% because the bubble burst. That appears to additionally say a lot 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 exchange merged and smaller corporations. Over the previous 40 years, the Nasdaq-100 has held more than 500 completely different corporations at completely different instances. In reality, solely six of the unique corporations nonetheless stay within the index: Apple, Micron Expertise, Intel, KLA-Tencor, PACCAR and Costco.  

Nasdaq is home for a lot of revolutionary growth corporations

One motive for the outperformance of the Nasdaq-100 Index over time is as a result of most of the most important, fast-growing tech shares within the world checklist on Nasdaq. 

Nonetheless, the weight of Tech shares within the Nasdaq-100 – utilizing the ICB sector classifications – has modified over time. It has ranged from as low as 25% to nearly 70%. And the management from different sectors has modified over time too, with Client Providers/Discretionary, Telecommunications and Well being Care all ranked second at completely different factors over time. (Observe that ICB modified its industry classification system and Nasdaq applied these modifications beginning in 2021. As a half of that change, the Client Providers industry was retired, and the Client Discretionary industry 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 financial disaster

For the reason that finish of the financial disaster, the Nasdaq-100 has had one other period of outperformance. It’s up more than 10-fold, beating different U.S. and worldwide indexes. Nonetheless, it’s truthful to say issues are completely different this time, as corporations within the Nasdaq-100 have additionally delivered superior earnings growth – thanks not too long ago to spending building artificial intelligence (AI) {hardware} and software program.

Chart 3: Index efficiency because the finish of the financial disaster aligns with earnings growth

Publicity to the worldwide economic system 

The 100 corporations within the Nasdaq-100 could all be U.S. listed, however they really symbolize the worldwide economic system. 

First, as a result of the Nasdaq-100 contains ADRs, it contains corporations that some indexes contemplate as belonging to different international locations. On the finish of 2024, the Nasdaq-100 had 10 “non-U.S.” corporations, with a weight of nearly 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 studies that nearly half of the revenues of the Nasdaq-100 are from different international locations, with vital revenues coming from Asian international locations.

Chart 4: Virtually 50% of constituent company incomes are from abroad

An enormous ecosystem of liquidity and buyers

The Nasdaq-100 Index doesn’t simply symbolize a enormous proportion of the most important corporations and a benchmark for financial merchandise within the world – it additionally has turn out to be a benchmark with some of probably the most liquid trading 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, even more, and more different investments have been added – from levered ETFs to ETFs utilizing choices for income and safety.

Mixed with the trading within the Nasdaq-100 corporations, the whole liquidity in Nasdaq-100 Index provides to more than $620 billion every day, coming from:

• The 100 shares within the index, which trade round $173 billion every day.
• Dozens of ETFs use the Nasdaq-100 benchmark. Mixed, these trade round $23 billion every day.
• Nasdaq-100 Futures trade $201 billion every day.
• Choices on shares, the Nasdaq-100 Index or Nasdaq-100 monitoring ETFs. These trade round $113 billion every day on a delta-adjusted publicity foundation.

Chart 5: Liquidity within the Nasdaq-100 ecosystem provides to more than half a trillion {dollars} of trading per day

Blissful Birthday Nasdaq-100!

It’s an index that has captivated buyers and merchants for years. It contains some of the best manufacturers within the U.S. As a result of of that, the industry has created methods for buyers to buy the Nasdaq-100 portfolio of corporations. 

That, in flip, helps buyers finance the innovation these corporations carry to the worldwide economic system, and permits these buyers to take part within the growth of their revenues as merchandise are offered to shoppers across the world.

It’s actually fairly superb that it’s achieved all that in simply 40 years.