Nasdaq Q-50: The Next Generation of High-Growth Companies

We speak with Sanjana Prabhakar, Index Research Specialist with Nasdaq Investment Intelligence, about the Nasdaq Q50 Index, which is made up of companies that are next in line to join the Nasdsaq-100 Index. Prabhakar shares the top sectors that make up the index and how the index has performed over the past couple of years.

What is the Nasdaq Q50 Index NXTQ?

The Nasdaq Q50 Index NXTQ is a market-capitalization weighted index designed to track the performance of companies that are next- eligible for inclusion into the Nasdaq-100 Index. The Index is comprised of 50 securities ranked by market capitalization and reflects companies across major industry groups including computer hardware and software, telecommunications, retail/wholesale trade and biotechnology. It does not contain securities of financial companies including banking and investment companies, as these are ineligible for Nasdaq-100 Index inclusion.

What are the selection criteria to be a part of Nasdaq Q50?

A security must meet the existing Nasdaq-100 Index NDX eligibility criteria. The index begins with the universe of all companies, both domestic and foreign, that are listed on the Nasdaq Stock Market. The index then removes all companies classified as Financials from eligibility according to the Industry Classification Benchmark ICB. Finally, the top 50 market cap names not currently in the Nasdaq-100 are included in the index. The methodology keeps the Nasdaq Q50 Index aligned with the innovation and growth focus of the Nasdaq-100 Index but with an acute focus on the next generation of market leadership.

What are some notable names in the index today? And which sectors make up the index?

Some of the notable names in the index today include Coca-Cola Europacific, Take-Two Interactive, Baidu, Sanofi, Akamai Technologies and Etsy.

Technology, Healthcare, Consumer Discretionary, Industrials, Energy, Consumer Staples, Utilities and Basic Materials are the sectors that currently make up the index. As of July 31, 2023, the sectors have the following index weights:

• Technology 32.2%
• Consumer Discretionary 25.1% Healthcare 20.7%
• Industrials 9.6%
• Energy 4.1%
• Consumer Staples 3.4% Utilities 3.1%
• Basic Materials 2.0

What has been the performance of the index over the past couple of years? Any notable themes or trends?

Over the last five years, the NXTQ Index has generated price returns of 42.1%, outperforming the S&P Midcap 400 Growth Index and the S&P Midcap 400 Index, which generated returns of 36.6% and 37.5%, while underperforming the Russell Mid-Cap Growth Index RDG Index) and the Nasdaq-100 NDX which generated returns of 54.7% and 117.9% respectively.

The pandemic marked a particularly significant turning point, with sudden drops in performance for all indexes. Post the lows of the pandemic, the pace of recovery has differed, with the Nasdaq-100 and the Nasdaq Q50 recovering from the lows seen in the pandemic sooner than other benchmarks. This reflects the central role played by companies of both indexes in the economic recovery.

All indexes Nasdaq-100, Nasdaq Q50, S&P Midcap 400 Growth, S&P Midcap 400 and Russell Mid-Cap Growth) registered declines in 2022, a year that was particularly challenging for the markets with the outbreak of the Russian-Ukraine war and the Federal Reserve rate hikes.

What are some of the companies that have graduated from that index to become part of the Nasdaq-100?

Since the launch of the index in 2007, 125 companies have graduated from the Nasdaq Q50 to the Nasdaq-100, at an average rate of nearly 8 companies per year. Some of the companies include cybersecurity players like CrowdStrike 2021 and Okta 2020, specialized software companies such as Atlassian 2020 and Splunk 2019, a corporate apparel company such as Cintas 2016, retailers such as JD.com 2015, and today’s mega-cap technology companies such as Netflix 2013 and Meta Platforms (formerly Facebook) (2012.

What should investors know about the Nasdaq Q50?

The Q50 provides exposure to the next generation of high-growth companies that are at the forefront of innovation, with a more frequent reconstitution schedule than the Nasdaq-100, providing investors the chance to capitalize on early entry. Its constituents invest a higher percentage of revenues back in R&D compared to smaller mid-cap benchmarks from the Russell and S&P 500.

Its exposure to Technology is relatively less concentrated than the Nasdaq-100, which might serve investors well in periods where there are heavy drawdowns from thematic technology, as seen in 2022. It also provides exposure to international equities, which might be an added benefit as we potentially enter a period of strong international performance.

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 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.

© 2023. Nasdaq, Inc. All Rights Reserved.

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