Nasdaq US 500 Large Cap Index vs S&P 500

The Nasdaq US 500 Large Cap Index (NQUS500LC) consists of the largest 500 stocks ranked by float-adjusted market capitalizations and assigned to the country of the United States according to the Nasdaq Global Index Family Methodology. The index provides a transparent, rules-based benchmark for investors who want to track the broad US large cap equity market.

The Nasdaq US 500 Large Cap Index (NQUS500LC) is constructed very similarly to and tracked closely with another popular US large cap benchmark, the S&P 500 index (SPX), but a few nontrivial differences exist:

1. The Nasdaq US 500 Large Cap only includes securities assigned to the country of the United States according to the Nasdaq Global Index Family Methodology. S&P 500 may include securities that are globally incorporated, domiciled or otherwise less representing the US large cap equity market.
2. The inclusion and exclusion of securities in Nasdaq US 500 Large Cap is purely driven by ranking rules-based methodology, while the S&P 500 has an index committee assigned to make discretionary decisions on activities.
3. Nasdaq US 500 Large Cap includes only the primary share class of the same company, while S&P 500 may list more than one share class.
4. Both indexes use the float-adjusted market capitalization weightings. But because of the above discussed share inclusion rule differentials on point 3, we can see some large weighting discrepancies on company aggregated levels.

Table 1 has shown that the top 25 names in Nasdaq US 500 Large Cap and S&P 500 are mostly identical, except for Alphabet (GOOGL) and Berkshire Hathaway (BRK.B). Alphabet (GOOGL) is ranked number 9 with an index weight of 1.38% in Nasdaq US 500 Large Cap as of March 26, 2018. Since S&P 500 includes both of Alphabet’s share classes A and C (GOOG and GOOGL) with rank numbers 8 and 10, respectively, the aggregated index weight has added up to 2.8%. For Berkshire Hatheway (BRK.B), Nasdaq US 500 Large Cap ranks it at number 12 with an index weight of 1.09%. S&P 500 ranks it at number 5 and weights it at 1.68%. The weight in S&P 500 is much higher than Nasdaq US 500 Large Cap despite that both indexes include only the liquid Class-B. This is because the S&P 500 index committee made a discretionary decision to exclude Class-A, but still accounts for its market capitalization into Class-B. For Nasdaq US 500 Large Cap, the weighting rule is consistent over time with the float-adjusted market capitalization applied to the most liquid share class of the company, a better practice from a trading perspective.

Table 2 summarizes the stocks that are missing from the S&P 500 but were included by Nasdaq US 500 Large Cap because they met the quantitative criteria of top 500 ranks by market capitalization. In total, they represent 3.77% of the Nasdaq US 500 Large Cap weights and more than half of them (44 out of 71) are concentrated in three industries: Technology, Financials, and Industrials.

Table 3 further provides the detailed list of all 71 missing stocks from the S&P 500. Many well-known, large cap companies are in the list: Tesla, Las Vegas Sands, TD Ameritrade, Twitter, to name just a few.

Table 4 summarizes the names that exist in S&P 500 but not in the Nasdaq US 500 Large Cap. They are in total representing 3.58% of the S&P 500 weights and more than half of them (44 out of 73) are concentrated in three sectors: Consumer Services, Financials, and Industrials.

Table 5 further provides the detailed list of all 73 missing stocks from the Nasdaq US 500 Large Cap. There are 7 names that are involved with announced M&A activities and 9 names are excluded due to not having a country designation of US as part of the Nasdaq Global Index Family Country assignment process laid out in the index methodology (labeled “no country designation” in the table below). The other 57 names are dropped due to lower ranks than the top 500 based on float-adjusted market capitalization.

Despite all the discrepancies in rules for security inclusion and weighting, the two indexes appeared to have very similar sector exposures (Chart 1). S&P 500 is slightly overweight in Technology and relatively underweight in Financials than the Nasdaq US 500 Large Cap. Their historical performance statistics are also closely tracked (chart 2 and table 6).

Table 1: Top 25 Companies in Nasdaq US 500 Large Cap as of March 26, 2018

Source: Nasdaq, Bloomberg

Table 2: Stocks Missing from S&P 500

Table 3: Detailed List of Stocks Missing from S&P 500

Table 4: Stocks Missing from Nasdaq US 500 Large Cap

Table 5: Detailed List of Stocks Missing from Nasdaq US 500 Large Cap

Chart 1: Portfolio ICB Industry Breakdown as of March 16, 2018 (Date of Semi-Annual Review)

Source: Nasdaq, Bloomberg

Chart 2: Nasdaq US 500 Large Cap and S&P 500 are Closely Tracked

Source: Nasdaq, Bloomberg

Table 6: Index Historical Performance As Of December 29, 2017

Source: Nasdaq, Bloomberg

*Figures are annualized.

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 asinvestment 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.

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