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The Nasdaq-100 – Foundation for the Future

Traders Magazine Online News, March 19, 2019

Dave Gedeon

If you are interested in gardening, you may have purchased a seed kit to get started. A seed kit often comes with seeds of various kinds of vegetable and fruit plants that can be grown in the quantity or mix that makes the most sense. It will have seeds for plants that bloom in different climates or different times of the year, and from this kit are innumerable options for organizing your farm or garden. In theory, you could have a farm or garden with only one crop, but your family would quickly tire of eating strawberries or potatoes every day, and if the weather or a blight wiped out your crop, you would be out of luck.

Building an investment portfolio is similar to buying a seed kit. Investors want to begin with exposure to securities that will grow, but also represent variety so they have a broad exposure to different industries. One highly popular “seed kit” for structuring a strong portfolio continues to be the Nasdaq-100.

Strong Performance

The Nasdaq-100 index is comprised of the top 100, non-financial companies by market cap listed The Nasdaq Stock Exchange®. The index represents growth, innovation and ambition. It was launched on January 31, 1985, to help highlight companies listed on The Nasdaq Stock Exchange. Today, Nasdaq is known for being the preferred exchange for technology companies. In 1985, Nasdaq was home to many financial stocks. As a result, Nasdaq decided to create two distinct indexes: one to showcase the financial companies (Nasdaq Financial 100) and the other to showcase the non-financial companies (Nasdaq-100).

In 1999, Nasdaq decided to turn the Nasdaq-100 into a tradable product and thus allow the world to invest in the top 100, non-financial companies listed on Nasdaq via a single share of an exchange-traded fund (ETF). Strong interest in tech stocks at the time translated into strong interest for the newly launched ETF.

Looking at returns from December 2003 to December 2018, the Nasdaq-100 Total Return Index (XNDX) has returned more than 236% higher than the S&P 500 Total Return Index (SPXT).

 

XNDX

SPXT

Cumulative Return

491.28%

255.12%

Annualized Return

12.80%

8.97%

Annualized Volatility

20.32%

18.21%

 

Fundamental Data:  Nasdaq-100 vs. S&P 500

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