The NASDAQ-100 Index® is a measure of past, present, and future performance of large-cap growth stocks. For investors, the NASDAQ-100 (or, NDX as it is also known for options trading since 1994) is the renowned yardstick to determine how well this grouping of market leaders in technology and various categories is performing on a daily basis. In other words, are the share price trends for leaders of the U.S. and global economy moving higher, lower, or sideways? This information helps investors of all types examine opportunity for new investment or rebalancing of existing portfolios. The story of the NASDAQ-100 is one of innovation and understanding its past provides insight into its future innovation.
Like planting a seed for a tree, the shape and evolution of indexes changes over time. The NASDAQ-100 Index® launched on January 31, 1985 (Happy 32nd Birthday!) as a market capitalization-weighted index. Fast forward to November 1998, in order to make the NASDAQ-100 suitable for the basis of an exchange-traded fund (ETF), the index weights were modified away from market cap weights in a special rebalance. This permitted launch of QQQ or the "NASDAQ-100 Index Tracking Stock®, today known as the PowerShares QQQ™. And, in May 2011, the index underwent a second special rebalance that resulted in the index share multipliers being set to one to achieve a modified market capitalization-weighted index. Achieving the index price level of 5,100 by its 32nd birthday, the NASDAQ-100 Index® began on January 31, 1985 at a base value of 125.00, as adjusted.
Even though “100” is the title, there are 107 components. So, why is it called the NASDAQ-100? The number of issuers is fixed in number to 100. Yet, an issuer may have two components, like Alphabet Inc. with A and C shares (GOOGL 4.25% & GOOG 4.81% approximate index weightings). The idea is simple; an issuer in totality counts as “one”. Speaking of weightings, as of 1/23/2017, the following are the top ten highest weighted issuers in descending order:
- Apple (10.89%),
- Alphabet (9.06%),
- Microsoft (8.33%),
- Amazon (6.61%),
- Facebook (5.13%),
- Comcast (2.97%),
- Intel (2.96%),
- Cisco (2.58%),
- Amgen (1.93%), and
- Kraft Heinz (1.83%).
We know the past. But, where will the NASDAQ-100 go in the future? In terms of the makeup of issuers, the market ultimately decides. The additions and deletions are wholly determined by annual market cap rankings each December. There is no committee making index membership determinations. Indeed, investors determine the membership components of the NASDAQ-100, as they do every day for its present and future index price performance.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.