Breaking down the return on an index is pretty straightforward from a mathematical perspective. Take each component security, analyze its weight and return and viola, the drivers of return are created. Because this is a relatively simple exercise, oftentimes pundits will make broad claims about drivers of an index — “XYZ Stock is driving the Index return.” Or “Don’t follow the index just follow XYZ."
The Nasdaq-100 has undergone a fair amount of analysis due to a relatively high weight from the largest company in the world, Apple. Over the past few years Apple’s weight has consistently been the highest within the Nasdaq-100, because at its core, the index is market capitalization weighted. This has certainly helped drive the return of the Nasdaq-100. However, it is fair to say that Apple has also been the largest component of other U.S. (and global) benchmark indexes and has driven the return for those indexes, as well.
Today we find ourselves in a period of Apple underperformance compared to the broad market. On July 20, 2015, Apple hit an all-time high. Since that peak, Apple has fallen 24% compared to Nasdaq-100’s decline of 7.3% and S&P 500’s decline of 8.9%.
On that date, Apple started the day with a 13.94% weight in Nasdaq-100 and as of January 12, 2016, it was at 11%. Despite this significant weight and underperformance, the Nasdaq-100 was still able to maintain outperformance over the broader S&P 500.
To put the great performance of the other 99 companies within Nasdaq-100 in context, between that time period, Apple’s price drop contributed roughly -155 index points out of the -345 point index drop. While Apple has driven slightly less than half the decline of the Nasdaq-100 in the past six months, the other 99 companies have rallied to offset that decline and still show the Nasdaq-100 as a strong performing index.
While the performance of an index can be broken down by simple math, sometimes that simple math can be deceiving. Apple’s decline could cause someone to think the Nasdaq-100 has been underperforming a broader market index, but the math says otherwise.
For more information, contact a member of our team who will get back to you.
You may also be interested in: What's New with the Nasdaq-100.
Nasdaq® is a registered trademark of Nasdaq, Inc. The information contained above is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. Neither Nasdaq, Inc. nor any of its affiliates makes any recommendation to buy or sell any security or any representation about the financial condition of any company. Statements regarding Nasdaq-listed companies or Nasdaq proprietary indexes are not guarantees of future performance. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results. Investors should undertake their own due diligence and carefully evaluate companies before investing. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED.
© 2015. Nasdaq, Inc. All Rights Reserved.