Today is a very special day for one of our favorite indexes — the Nasdaq-100 Index® is turning 40!
Over the past four decades, the index has grown to become one of the most popular benchmarks for trading and investment products in the world. Nasdaq-100® stocks have a market cap of over $27 trillion as of year-end 2024. Investors can buy products that track the Nasdaq-100, too, using stocks, ETFs, options and futures. (Note that there are many other product types that track the Nasdaq-100 including but not limited to structured products and annuities. For simplicity, we are not adding other product types into the liquidity analysis beyond what’s stated in the document.) Combined, they trade over $620 billion of value each day.
The birth of the Nasdaq-100
The Nasdaq-100 should not be confused with the Nasdaq Composite® Index. The Nasdaq Composite Index represents every company listed on Nasdaq, and was launched in 1971, in conjunction with the launch of the Nasdaq Stock Market®.
The Nasdaq-100 was born on Jan. 31, 1985. It is designed to represent the top 100 (non-financial) stocks listed on Nasdaq. At the time, the market cap totaled just $58 billion. Today, with most of the largest stocks in the world in the Nasdaq-100 index, including AAPL, AMZN, NVDA and GOOG, it adds to a staggering $27 trillion.
Interestingly, a separate index, the Nasdaq Financial-100TM Index also started on that date, and it still exists today.
14% compound returns from over 500 companies
Since its inception, the Nasdaq-100 is up approximately 20,000% as of Dec. 31, 2024. That’s an impressive 14.25% per annum on a compound return basis compared to 11.57% in the S&P 500 over the same time. It’s even more impressive considering that the index was the poster child for the tech bubble — where the index fell 83% as the bubble burst. That seems to also say a lot about the benefits of long-term investing.
Chart 1: Nasdaq-100 Index returns since inception with QQQ performance and assets
As with all indexes, constituents also change over time. IPOs create new companies, which are added to replace merged and smaller companies. Over the past 40 years, the Nasdaq-100 has held more than 500 different companies at different times. In fact, only six of the original companies still remain in the index: Apple, Micron Technology, Intel, KLA-Tencor, PACCAR and Costco.
Nasdaq is home for many innovative growth companies
One reason for the outperformance of the Nasdaq-100 Index over time is because most of the largest, fast-growing tech stocks in the world list on Nasdaq.
However, the weight of Tech stocks in the Nasdaq-100 – using the ICB sector classifications – has changed over time. It has ranged from as low as 25% to almost 70%. And the leadership from other sectors has changed over time too, with Consumer Services/Discretionary, Telecommunications and Health Care all ranked second at different points over time. (Note that ICB changed its industry classification system and Nasdaq implemented those changes starting in 2021. As a part of that change, the Consumer Services industry was retired, and the Consumer Discretionary industry came into existence.) Many companies from those sectors are also household names, including Pepsi, Starbucks, Costco, Honeywell, Gilead, Amgen and Biogen.
Chart 2: Nasdaq-100 Tech sector weights over time
Nasdaq-100 outperforming since the financial crisis
Since the end of the financial crisis, the Nasdaq-100 has had another period of outperformance. It is up more than 10-fold, beating other U.S. and international indexes. However, it’s fair to say things are different this time, as companies in the Nasdaq-100 have also delivered superior earnings growth – thanks recently to spending building artificial intelligence (AI) hardware and software.
Chart 3: Index performance since the end of the financial crisis aligns with earnings growth
Exposure to the global economy
The 100 companies in the Nasdaq-100 may all be U.S. listed, but they actually represent the global economy.
First, because the Nasdaq-100 includes ADRs, it includes companies that some indexes consider as belonging to other countries. At the end of 2024, the Nasdaq-100 had 10 “non-U.S.” companies, with a weight of almost 4%, in the index – including ARM, Linde, and AstraZeneca.
In addition, almost all the companies in the index have global products and workforces. FactSet reports that almost half of the revenues of the Nasdaq-100 are from other countries, with significant revenues coming from Asian countries.
Chart 4: Almost 50% of constituent company incomes are from overseas
A huge ecosystem of liquidity and investors
The Nasdaq-100 Index doesn’t just represent a huge proportion of the largest companies and a benchmark for financial products in the world – it also has become a benchmark with some of the most liquid trading vehicles.
The launch of NDX options (in 1994), NDX futures (in 1996) and the QQQ ETF (in 1999) allowed investors to capture the returns of the Nasdaq-100 Index. Over time, even more, and more varied investments have been added – from levered ETFs to ETFs using options for income and protection.
Combined with the trading in the Nasdaq-100 companies, the total liquidity in Nasdaq-100 Index adds to more than $620 billion each day, coming from:
- The 100 stocks in the index, which trade around $173 billion each day.
- Dozens of ETFs use the Nasdaq-100 benchmark. Combined, these trade around $23 billion each day.
- Nasdaq-100 Futures trade $201 billion each day.
- Options on stocks, the Nasdaq-100 Index or Nasdaq-100 tracking ETFs. These trade around $113 billion each day on a delta-adjusted exposure basis.
Chart 5: Liquidity in the Nasdaq-100 ecosystem adds to more than half a trillion dollars of trading per day
Happy Birthday Nasdaq-100!
It’s an index that has captivated investors and traders for years. It includes some of the greatest brands in the U.S. Because of that, the industry has created ways for investors to buy the Nasdaq-100 portfolio of companies.
That, in turn, helps investors finance the innovation those companies bring to the global economy, and allows those investors to participate in the growth of their revenues as products are sold to consumers around the world.
It’s really quite amazing that it’s achieved all that in just 40 years.