WHAT IS THE NASDAQ-100 AND WHAT DOES IT REPRESENT?
Discover what the Nasdaq-100 represents in markets today
The Nasdaq-100 is one of the most widely followed stock market indices in the world. Comprising 100 of the largest non-financial companies listed on the Nasdaq Stock Market, it serves as a benchmark indicator of the performance of leading growth and technology companies. The index includes a diverse array of businesses, from global technology giants such as Apple and Microsoft to innovative consumer, biotech, and industrial corporations.
Launched in January 1985, the Nasdaq-100 was created to expose investors to the top-performing sectors of the economy, excluding the financial sector. This exclusion differentiates it from broader indices like the Nasdaq Composite, which includes financial firms, and it gives investors a clearer view of non-financial market trends and dynamics.
Moreover, the index is capitalisation-weighted, meaning that companies with the largest market capitalisations have the most influence on its performance. This characteristic aligns the index with the economic impact and scale of the included firms, many of which are known for their innovative capabilities and high growth trajectories.
In this article, we will explore the following:
- What the Nasdaq-100 comprises and how it is constructed
- Its role as an economic and investment benchmark
- How investors can track or invest in the Nasdaq-100
The Nasdaq-100 is built from 100 of the largest domestic and international non-financial companies listed on the Nasdaq Stock Market. These companies span multiple sectors but are heavily weighted towards technology and consumer services.
Key sectors in the index include:
- Technology: Companies such as Apple Inc., Microsoft Corporation, NVIDIA Corp., and Adobe Inc. are prime examples, collectively commanding a significant portion of the index's weight.
- Consumer discretionary: Businesses like Amazon.com Inc. and Tesla Inc., known for their innovation and fast-paced growth, contribute to the index's dynamism.
- Health care: Firms like Amgen Inc., Gilead Sciences Inc., and Moderna Inc. illustrate the index's reach into lucrative biotech and pharmaceutical areas.
- Telecommunications and Media: Companies like Netflix Inc. and Alphabet Inc. (the parent of Google) belong to this category, influencing consumer digital behaviour globally.
Importantly, the index excludes companies from the financial sector, including commercial banks, investment banks, and insurance firms. This design choice allows the index to offer a concentrated view of performance within growth-rich and trend-shaping industries.
The Nasdaq-100 undergoes rebalancing on a quarterly and annual basis, ensuring that it remains representative of the market's largest non-financial players. The index is reviewed periodically to maintain compliance with selection criteria pertaining to market capitalisation, listing standards, and liquidity thresholds.
Eligibility rules stipulate that companies:
- Must be listed exclusively on the Nasdaq exchange
- Must meet minimum liquidity requirements
- Cannot be investment companies, limited partnerships, or other types of financial firms
Moreover, companies with dual-class share structures may still be eligible, as observed with Alphabet's various share classes that appear in the index under different ticker symbols.
This index representation makes the Nasdaq-100 a popular barometer of innovation, capturing many of the world's leading-edge companies that shape global technology trends and contribute disproportionately to GDP growth in developed economies.
The Nasdaq-100 serves as both a benchmark and an investment vehicle for individuals and institutions interested in accessing the performance of vital segments of the market. This tradable index allows market participants to gauge economic sentiment in leading technology and growth-oriented sectors.
Key uses of the Nasdaq-100 include:
- Market Benchmarking: Portfolio managers and analysts frequently use the index to compare the performance of managed funds or strategies against a recognised standard.
- Index Tracking: A wide array of financial products track the performance of the Nasdaq-100, including ETFs like the Invesco QQQ Trust (QQQ), mutual funds, futures, and options.
- Economic Indicator: As it largely consists of growth-driven companies, the index reflects investor sentiment around technological innovation, digital consumption, and global business cycles.
Investors use such resources to diversify their exposure and adopt passive strategies that mirror the index's performance. A notable advantage of investing in a Nasdaq-100-linked ETF or index fund is gaining access to multinational corporations with high growth potential, often without the same volatility as investing in individual tech stocks.
Performance and Volatility:
Historically, the Nasdaq-100 has delivered strong long-term returns, though with periodically high levels of volatility. Due to the overrepresentation of high-growth technology stocks, the index can react sharply to macroeconomic data, interest rate adjustments, earnings reports, and regulatory shifts affecting the tech sector.
As a result, while the index outperforms broad market indices during expansionary periods, it may underperform or experience steeper corrections during economic downturns or risk-off market phases.
Global Reach:
The Nasdaq-100 includes several large-cap multinationals with a strong international revenue base. Although US-listed, many of these firms generate a large share of their income from markets in Europe, Asia, and other parts of the world. Thus, the Nasdaq-100 acts not only as a proxy for the American tech economy but also as a reflection of global corporate performance.
Whether used for comparative analysis or targeted investment exposure, the Nasdaq-100 continues to influence financial markets, shaping investment strategies and economic narratives worldwide.
