NASDAQ 100 INDEX

The Nasdaq 100 Index measures the yield of a portfolio of approximately 100 Wall Street-traded stocks.

How are these actions chosen?

They are listed on the NASDAQ, are the largest companies with the most volume operating, and have a marked difference from other indices: which sectors of the economy they represent.

Technology, services and healthcare companies prevail, and financial sector companies are not included.

The Nasdaq 100 and S&P 500 are very popular indices when it comes to analyzing and measuring stock performance on Wall Street, but have marked differences in their portfolio and yields.

nasdaq-100-backtesting

Let’s look at a chart (from the official NASDAQ page updated as of June 2020, like everyone in this article) that clearly reflects those differences:

nasdaq-100-sectors

The three biggest differences: Technology, Services and Finance (0% on the Nasdaq 100).

These higher proportions of technology and service companies have helped the index achieve new historical highs continuously in recent years, well above the yields measured in the S&P 500.

The index portfolio is not static.

It is subject to scheduled (once-a-year) and contingent changes, just based on market value of the stocks.

The Markets decides wich stocks are included in the Nasdaq 100 Index, and the weight in the portfolio.

NASDAQ 100 Index Yields and Risks

Let’s look at a graphical comparison of the last 12 years, in which the total yields of Nasdaq 100 have been higher by 10 of those 12:

index-returns

These annual variations, plotted cumulatively, are seen as follows:

returns-cumulative

The table below summarizes yields from December 31, 2007 to June 30, 2020. It has shown more than double the yield, and only 10% more volatility:

nasdaq-100-vix-vxn

You can see more information about VIX and VXN in this article

Turning an Index into an Asset

The Nasdaq 100 is nothing more than an index, a mathematical calculation made on a virtual portfolio.

If we want to invest in that portfolio, we need an asset that emulates it.

The most popular is QQQ , an ETF developed by Invesco, which we have chosen to implement our investment policy.

It’s worth it to visit the Nasdaq 100 microsite  on the Nasdaq website.

You can find more information here:

QQQ’s stock portfolio