NASDAQ 100 Index is a large-cap index of non-financial companies in the US. It includes the top 100 companies that actively trade on NASDAQ. It is also the most preferred index for innovators as technology companies dominate it. This article covers the NASDAQ 100 Index, its composition, and eligibility in detail.
What is the NASDAQ 100 Index?
NASDAQ 100 Index is a stock market index that consists of the top 100 largest actively traded domestic and international companies in the USA that are listed on the NASDAQ stock exchange. Moreover, it is a large-cap index that consists of only top non-financial companies based on market capitalization.
The index is created as a barometer to measure and monitor the progress of a future filled with opportunity. This index is one of the consistently highest performing indexes, and it also outperformed several other indexes, including the S&P 500, from the past 11 years. It is also the most preferred index for innovators as it includes the most technologically advanced companies like Apple, Google, Intel, and Tesla. The index covers several industries, including technology, consumer services, healthcare, consumer goods and also industrial companies.
It provides access to shares, options, futures, ETFs, and also annuities, covering all levels of investors. The index is also home to dozens of financial products that are licensed off of the NASDAQ 100 Index.
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What is the Composition of the NASDAQ 100 Index?
The NASDAQ 100 index is home to companies from sectors excluding financial services. Technology companies like Apple, Alphabet, Microsoft, and also Intel dominate the index. Moreover, technology companies account for 56% of the index. The index also has consumer service companies like Amazon, Starbucks, Costco, etc., which account for 22% of the index. Healthcare companies like Alexion, Intuitive Sergical, etc., have a 6% share in the index. Consumer goods companies like Tesla, Netflix, Monster Beverages, Mattel, and also Kraft Heinz, etc., have a 7% share. Industrial Companies take up 5% of the index.
|Industry||Composition of the Index (%)||Major Companies|
|Technology||56%||Apple, Alphabet, Microsoft, Intel, Facebook, Seagate|
|Consumer Services||22%||Amazon, Starbucks, Costco, Priceline|
|Consumer Goods||7%||Tesla, Netflix, Mattel, Kraft Heinz, Monster Beverages|
|Healthcare||6%||Intutive Sergical, Amgen, Alexion|
|Industrial||5%||CSX, PACCAR, Fastenal|
Weighting of NASDAQ 100 Index
NASDAQ 100 Index is a modified market capitalization-weighted index. The value of the index is the sum total of index share weights. Index share weights are calculated by multiplying the number of shares with the last trading price and then dividing by the divisor of the index. The divisor will help scale down the aggregate value of the index to a lower magnitude which is ideal for index reporting.
Value of the index = Aggregate Adjusted Market Value/ Divisor
Divisor = (Market Value after Adjustments / Market Value before Adjustments) X Divisor before Adjustments
Also, the index is calculated in three versions: the price return index, total return index, and notional net total return index. The price return is calculated without considering any cash dividends. The total return considers reinvestment of cash dividends on the ex dividend date. At the same time, the notional net total return index reflects the net total return after considering reinvestment of 70% of the cash dividends and factoring in the 30% tax rate.
How NASDAQ 100 Index Traded?
The NASDAQ 100 Index trades through the Invesco QQQ Trust. It tracks the 100 largest companies by market capitalization on the NASDAQ stock exchange. Moreover, for trading, each company in the trust has to be a member of the NASDAQ 100. Also, it has to be trading on the broader stock exchange for at least two years.
The listed stocks must also have an average daily trading volume of 2,00,000. Furthermore, the companies should be publicly reporting the earnings quarterly and annually.
Also, there are certain exceptions for newly listed public companies with extremely high market capitalization. The Invesco QQQ Trust excludes companies with bankruptcy issues. Hence, the trust’s composition may not always match that of the Index. However, the fundamental goal of the QQQ is to track the price and performance of the underlying index.
Eligibility for NASDAQ 100 Index
The NASDAQ 100 Index is among the world’s preeminent large-cap growth indexes. It includes 100 largest domestic and also international non-financial companies listed on the NASDAQ stock exchange by their market capitalization. Moreover, the index includes almost all companies from 27 countries.
The NASDAQ 100 index uses a modified capitalization methodology for stock selection. This method uses individual weights according to the company’s market capitalization.
To be part of the NASDAQ 100, the securities have to be exclusively listed on the NASDAQ stock exchange. The index comprises non-financial sectors such as retail, biotechnology, industrial, technology, health care, etc. It excludes the financial sector – commercial and as well as investment banks. Following are the securities that can be part of the NASDAQ 100 index:
- American depositary receipts (ADRs)
- Common stocks
- Ordinary shares
- Tracking stocks
The other eligibility criteria are liquidity and market capitalization. However, there is no minimum requirement for market capitalization. However, the index anyhow represents the top 100 largest companies on NASDAQ.