Why Millennials Are Gravitating to the Nasdaq-100
Millennials numbered 72.1 million in 2019, making them the largest living adult generation in the U.S. Those aged 28 to 38 have long been skewered for their perceived love of avocado toast, ironic mustaches and fixed-gear bikes — yet there's no denying they've become a sizable and influential demographic of investors.
As Gen Y increasingly invests in the stock market, millennials are also making it clear they want their portfolio holdings to align with their personal beliefs and consumer priorities. For example, as the world's first digital native generation, millennials have shown a fondness for tech stocks.
And as the preeminent index for leading tech equities, the Nasdaq-100 has benefited from the interest among millennial investors, as more shift away from traditional indexes like the S&P 500.
Who are millennial investors?
A 2018 TD Ameritrade survey found that participation in the stock market was about 50/50 for millennials. While that rate is lower than that of their older cohorts, it still means around 36 million millennials are investing in equities.
Many more may be saving through retirement plans, potentially putting their money in index funds. A Washington Post analysis of government data found millennials contributed $373 million to individual retirement accounts in fourth quarter 2019, a 46% increase from the same quarter in 2018.
In general, millennials invest carefully and intentionally. Their financial lives have been shaped by events and trends like the Great Recession and the rise in student loan debt. These impacts have influenced their primary financial goals in life. A 2020 Truist survey found, of millennials, the top goals were:
- Debt repayment (57%)
- Travel (48%)
- Increasing retirement savings (45%)
Seemingly traditional goals like homeownership (40%) and starting a family (30%) lagged behind those priorities.
Millennials are also more likely to want to be in control of their finances and involved in investment decision-making. A YCharts survey from 2018 found that, of millennials with a brokerage account, 76% said it was self-directed. Also, 35% of millennials said they checked their investments daily.
Where do millennials invest?
More than anything, millennials want to invest in companies that they trust and which show a commitment to corporate social responsibility as well as environmental, social and governance (ESG) causes. Research from Natixis in 2017 found:
- 75% of millennials want to know their investment is doing good in the world.
- 75% said they wouldn't invest in particular companies because it'd conflict with their values.
- 73% said they would sell a holding due to negative ethical or environmental performance.
In all, 95% of millennials were interested in sustainable investing in 2019, according to an MSCI report.
Millennials also like to buy into companies they are familiar with or excited by. Research from Apex Clearing found that, in addition to tech stocks, millennials were particularly active in buying shares of entertainment streaming companies and payment processors — which are products and services they use on a daily basis.
In terms of the actual investment vehicles that millennials favor, exchange-traded funds (ETFs) have emerged as go-to. According to a 2019 Charles Schwab survey of ETF investors:
- 79% of millennials see ETFs as their primary investment type, compared to 67% of all respondents and just 37% of baby boomers.
- 90% said ETFs were their investment of personal choice, which 79% of all investors said.
- 74% of millennials said technology ETFs were their top sector priority, compared to 69% of all investors.
- And, somewhat surprisingly, 86% of millennials investors said now was a good time to get into fixed-income ETFs, compared to 74% of all investors and 50% of baby boomers.
Millennials and the Nasdaq-100
All of these factors have brought millennial investors and the Nasdaq-100 in unison. Gen Y's appetite for tech stocks and desire for ESG-friendly holdings has led them to increasingly invest in Nasdaq-100 components, and away from traditional companies and sectors represented in the S&P 500.
According to Apex Clearing, the top 100 stocks that millennials bought in 2019 had tremendous overlap with the NDX. The top 100 list featured Nasdaq-100 companies (as of April 2020) including:
- #1 Amazon (AMZN)
- #2 Apple (APPL)
- #3 Tesla (TSLA)
- #4 Facebook (FB)
- #7 Netflix (NFLX)
- #8 Advanced Micro Devices (AMD)
- #9 Microsoft (MSFT)
- #11 Alphabet Class C (GOOG)
- #12 Nvidia (NVDA)
- #14 Alphabet Class A (GOOGL)
- #21 JD.com (JD)
- #25 Intel (INTC)
- #28 Starbucks (SBUX)
- #30 Micron (MU)
- #31 Costco (COST)
- #34 Paypal (PYPL)
- #42 Netease (NTES)
- #51 Activision Blizzard (ATVI)
- #52 Cisco (CSCO)
- #53 Baidu (BIDU)
- #66 Qualcomm (QCOM)
- #78 Adobe (ADBE)
- #81 Gilead Sciences (GILD)
- #90 Pepsico (PEP)
Based on Apex Clearing's numbers, NDX components represented nearly 55% of cumulative millennial holdings in the Apex 100 at that time.
As for the ESG preference of millennials investors, that too dovetails with the Nasdaq-100, which is home to some of the most recognized sustainable brands.
The NDX was well-represented in Barron's 2019 ranking of the top 100 most sustainable publicly traded companies, which featured Nasdaq-100 names like Cisco, Texas Instruments (TXN), Intuit (INTU), Autodesk (ADSK), Lam Research (LRCX), Applied Materials (AMAT), Microsoft, NVIDIA, Vertex Pharmaceuticals (VRTX), PepsiCo (PEP), BioMarin Pharmaceutical (BMRN) and Cintas (CTAS).
Additionally, the Carbon Disclosure Project (CDP) — which compiles and shares ESG data with investors and policy decision-makers — gave seven NDX components an "A" in climate-change reporting: Adobe, Amazon, Apple, Cisco, Google, Microsoft and PACCAR (PCAR).
Learn more about ways to invest in the NDX
As millennials and their investing attitudes and motivations mature, they will likely be looking for ways to maximize their wealth strategies. The Nasdaq-100 could figure heavily into those plans, which may mean more millennials will become interested in the different ways to invest in the NDX.
Want to learn about ETFs and other investment products that track the Nasdaq-100? Contact us today for more information.
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