To some investors, it might seem odd to limit a tradable index to a single exchange and then to constrain those securities listed on that exchange by sector. But applying these two nuanced rules has resulted in noteworthy price performance over the past 10 years. The index being referenced is the renowned Nasdaq-100.
It could be argued that the Nasdaq-100 Index is not just a liquid, tradable benchmark but that in fact the Nasdaq-100 Index has become the best equity manager of the past 10 years. Here’s why …
Much like the S&P 500 is not the representation of the 500 largest U.S. companies by market cap or the Dow Jones Industrial Average being the 30 biggest names of industry, the Nasdaq-100 is not a broad market, broad-based benchmark.
The Nasdaq-100 represents the Nasdaq, and as a result, it represents growth, innovation and ambition. The S&P 500 is meant to represent U.S. large-cap, yet companies are included that are not large-cap. Dow Jones places more weight on Goldman than Apple. The Nasdaq-100 represents some of the most-well-known brand names in today’s global economy, the names of companies that have innovated industry after industry.
For background, the Nasdaq-100 comprises the 100 largest, nonfinancial companies listed on the Nasdaq Stock Market. It was launched on January 31, 1985, as a marketing tool to help highlight companies listed on The Nasdaq Stock Exchange®. Since Nasdaq, at that time, was home to many financial stocks, it decided to create two distinct indexes: one to showcase the financial names (Nasdaq Financial-100) and the other to showcase the nonfinancial names (Nasdaq-100).
In 1998, Nasdaq decided to turn the Nasdaq-100 into a tradable product and thus allow the world to invest in the top 100 nonfinancial names listed on Nasdaq via a single share of stock. This coincided with a tech bull market, so interest in this type of product was high. From its first listing as an ETF in March 1999 through today, the Nasdaq-100 has returned more than 15% higher than the S&P 500. Not bad.
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Dave Gedeon is Vice President of Nasdaq Global Information Services, which encompasses Nasdaq Global Indexes.
He is responsible for the index product management, development and research of Nasdaq Global Indexes, a leading global index provider that calculates more than 40,000 indexes spanning all major asset classes and geographies.