The Nasdaq100 Index is a collection ofthe 100 largest, most actively traded companies listed on the Nasdaq stock exchange. The index includes companies from diverse industries like manufacturing, technology, healthcare, and others. The index excludes those in the financial sector, like commercial and investment banks.
Key Takeaways
- The Nasdaq 100 Index is a stock index of the 100 largest companies by modified market capitalization trading on Nasdaq exchanges.
- The index includes companies in basic materials, consumer discretionary spending, consumer staples, healthcare, industrials, technology, telecommunications, and utilities. The index excludes financial firms.
- Companies included in the index are some of the largest in the world, such as Microsoft, Apple, Amazon, Tesla, and Meta.
- The Nasdaq 100 is an index, so it cannot be directly invested in, but investors can gain exposure to the index through exchange-traded funds (ETFs), mutual funds, futures and options, and annuities.
Understanding the Nasdaq 100 Index
For inclusion in the Nasdaq100, index securities must be listed exclusively on a Nasdaq exchange. These can include common stocks, ordinary shares, American depositary receipts, and tracking stocks. They must also be nonfinancial and have traded for at least three months on an exchange.
The Nasdaq 100's liquidity criteria require that each security have a minimum average daily trading volume of 200,000 shares (measured over the previous three calendar months). There is no market capitalization requirement.
The Nasdaq 100 Index is constructed with a modified capitalization method, which uses the individual weights of included items according to their market capitalization. Weighting limits the influence of the largest companies and balances the index among all members.
Nasdaq reviews the composition of the index each quarter and adjusts theweightsif the distribution requirements are not met.
Composition of the Nasdaq 100 Index
The Nasdaq 100 Index comprises assets in various sectors, except financial services. There are eight total sectors, which are the following as of Sept. 30, 2023:
- Technology (57.1%)
- Consumer Discretionary (18.73%)
- Healthcare (7.12%)
- Telecommunications (5.48%)
- Industrials (4.87%)
- Consumer Staples (4.23%)
- Utilities (1.24%)
- Basic Materials & Energy (0.96%)
The top 10 companies by weight in the Nasdaq 100 as of Sept. 30, 2023, are as follows:
- Apple Inc. (10.82%)
- Microsoft (9.48%)
- Amazon.com (5.30%)
- NVIDIA (4.34%)
- Meta Platforms (3.78%)
- Tesla (3.21%)
- Google (A shares) (3.14%)
- Google (C shares) (3.09%)
- Broadcom (2.97%)
- Costco Wholesale (2.17%)
Special Rebalancing
Nasdaq undertook a special rebalancing of the Nasdaq 100 index on July 17, 2023. The component companies' weights were rebalanced to address overconcentration in the index and make it less dependent on just a few large companies. Nasdaq’s rules state that if stocks with a weight of more than 4.5% in the index collectively account for more than 48% of the index, then the index must be rebalanced.
Nasdaq has only undertaken a special rebalance twice before, in 1998 and 2011. The latest special rebalance was triggered by a recent rally in tech stocks and Tesla shares, which pushed the aggregate weight of the top five companies (Microsoft, Apple, Nvidia, Amazon, and Tesla) above the 48% threshold. The special rebalance reduced their weights and increased those of other companies like Alphabet, Meta Platforms, Netflix, and Costco.
The special rebalance will impact the performance and volatility of the index and the individual stocks, as some investors may adjust their portfolios to align with the new weights.However, this is likely to be temporary, as the rebalance does not affect the fundamentals or prospects of any of the companies in the index.
Investing in the Nasdaq 100 Index
The Nasdaq 100 index tracks the largest 100 companies by modified market cap trading on Nasdaq exchanges, so investors cannot directly invest in it. However, there are many other ways to gain exposure to the index without buying the individual stocks included in the index.
Investors can invest in exchange-traded funds (ETFs), mutual funds, futures and options, or annuities. For the average investor, opting for an ETF is the simplest and least risky means of gaining exposure to the companies in the index.
What Makes Up the Nasdaq 100?
The Nasdaq 100 is made up of the 100 largest companies by modified market cap that trade on Nasdaq exchanges in the basic materials, consumer discretionary, consumer staples, healthcare, industrials, technology, telecommunications, and utilities sectors.
What Is the Nasdaq 100 Used For?
The Nasdaq 100 is a stock index that tracks some of the most prominent large-cap companies in the world. As such, it's used to indicate the overall health of the economy and the specific sectors that are included in the index. The performance of the index allows investors to understand the performance of a part of the economy and make investment decisions based on that data.
What Is Nasdaq?
Nasdaq is an electronic marketplace for buying and selling securities and stands for the National Association of Securities Dealers Automated Quotations. Formed in 1971, it was the first electronic stock market. Since then, it's become known for its technology-based listings, with many tech companies like Apple, Microsoft, and Amazon trading on it. It manages two stock exchanges: the Nasdaq Stock Market and the Nasdaq Nordic, which comprises the stock exchanges in Helsinki, Copenhagen, Stockholm, and Iceland.
What Is the Difference Between the Nasdaq 100 and the S&P 500?
The Nasdaq 100 and the S&P 500 are stock market indexes that track the performance of some of the world's largest companies. Both indicate the market's performance—you'll hear their latest closing numbers in most national news summaries. The Nasdaq includes 100 companies, while the S&P includes 500 companies, but the differences between the two are greater than that. The Nasdaq 100 can include foreign companies, while the S&P 500 is only for U.S. firms. Additionally, the Nasdaq 100 excludes companies from the financial sector, though that's not the case for the S&P 500. Lastly, the Nasdaq 100 only consists of companies that trade on Nasdaq exchanges, while the S&P 500 consists of companies that trade on all U.S. exchanges.
The Bottom Line
The Nasdaq 100 Index focuses on the largest 100 nonfinancial companies trading on Nasdaq exchanges. It is a diversified index providing a broad overview of the market, covering a variety of sectors. Investors seeking broad exposure to some of the world's largest companies can invest in the index via ETFs, mutual funds, futures and options, or annuities.
