Introducing The Nasdaq Innovators Completion Cap Index™: Small Caps For the Innovation-Driven Economy of Tomorrow
The Nasdaq Stock Exchange was established in 1971 as the world’s first fully electronic exchange and immediately began attracting IPOs from some of the most innovative companies in the world. In 1985, the Nasdaq-100® Index (NDX®) was launched, tracking 100 of the largest domestic and international non-financial companies listed on Nasdaq. Over the course of several decades, many of the world’s largest companies have gained entry to NDX, including Intel, Apple, Microsoft, Cisco Systems, Alphabet, Amazon, Meta Platforms, NVIDIA, and Tesla. Investors in products tracking NDX have been handsomely rewarded, with total return performance more than doubling that of the S&P 500 over the span of the past decade and a half (590% vs. 242% respectively, trailing 15 years total returns as of June 30, 2022). A major driver of this outperformance has been an outsized focus by Nasdaq-100 companies on innovation, specifically R&D and other investments into intangible assets. Whether measured by R&D expenditure as reported on company financial statements, by patent filings, or by other methods, the “innovation gap” between the Nasdaq-100 and the S&P 500 has been consistent and substantial, despite the growing overlap between the two indexes.
In August 2020, Nasdaq launched the Nasdaq Next Generation 100 Index™ (NGX™) to track the next 100 largest domestic and international non-financial companies listed on Nasdaq. NGX serves as a natural extension of NDX, from the realm of the biggest large cap Nasdaq innovators into a hybrid of smaller large caps and true midcaps. Its history of constituents is chock-full of storied companies such as Tesla, Netflix, DocuSign and CrowdStrike that have graduated from the ranks of NGX up to NDX. Beyond those two indexes, more than 3,500 other Nasdaq-listed companies exist within the broad-based Nasdaq Composite™. With the inexorable rise of intangible assets in the 21st century, the next logical benchmark to extend the “innovation suite” would have to focus on small-cap companies—but with an intuitive screening process to identify the most innovative subset among them.
The Nasdaq Innovators Completion Cap Index (NCX™) was launched on June 7, 2022, to track the performance of 200 Nasdaq-listed companies outside of NDX/NGX. Specifically, NCX’s methodology leverages a third-party dataset built by IPR Strategies1—a leader in the science of patent valuation—to identify the 200 non-NDX/NGX companies listed on Nasdaq that have the highest-valued patent portfolios in relation to their market capitalizations (excluding financials). The index uses equal weighting, and is reconstituted semiannually in June and December with additional quarterly rebalances in March and September. Constituent securities must have minimum market caps of $100 million, minimum three-month average daily traded volume of $1 million, and three months of trading history (i.e. seasoning) to be eligible for inclusion. Beyond excluding financials (based on ICB Industry), REITs and other Open End/Miscellaneous Investment Vehicles listed on Nasdaq are ineligible as well. In addition to common stocks and ordinary shares, American Depositary Receipts (ADRs) are eligible for inclusion.
Let’s first take a look at the composition and recent performance of the index, before analyzing its backtested returns dating back to December 2011; its factor sensitivities; competitive positioning against similar products; and fundamental characteristics.
Disclaimer: 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 , 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.
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Nasdaq Index Research Team
Nasdaq
Nasdaq calculates more than 40,000 diverse indexes, providing coverage across asset classes, countries and sectors.
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