The NASDAQ Composite Index is a stock market index that tracks nearly 3,400 publicly traded companies listed on the NASDAQ Stock Exchange, which includes many high-growth technology stocks.
Definition of the NASDAQ Composite Index
The NASDAQ Composite Index is one of the most followed indices in the United States, alongside the S&P 500 and the Dow Jones Industrial Average (DJIA). It tracks nearly 3,500 stocks, including many high-growth technology stocks. The NASDAQ Composite Index was launched in 1971. The term NASDAQ in its name stands for the National Association of Securities Dealers Automated Quotations.
Technology stocks, including software, computer, and internet companies, dominate nearly half of the NASDAQ Composite Index. These companies include giants like Apple, Meta (formerly known as Facebook), Alphabet (the parent company of Google), Amazon, and Netflix.
The NASDAQ Composite Index includes U.S. companies as well as companies with headquarters outside the United States that are listed on the NASDAQ or were dual-listed on another U.S. exchange prior to January 2004.
How the NASDAQ Composite Index Works
The NASDAQ Composite Index is a market-capitalization-weighted index, or value-weighted, of the companies that have shares traded on the NASDAQ. This means that the quantity of each component in the index is determined by the market capitalization of the component at the end of each trading day. Thus, companies with larger market capitalizations have a greater impact on the overall index value.
The weight of each component in the index is determined using the following formula:
Weight = (Market Capitalization of Component / Total Market Capitalization of Index) × 100
Composition of the NASDAQ Composite Index
The NASDAQ Composite Index is known to be heavily focused on technology, but it also tracks stocks in other sectors as well.
As of November 5, 2021, the NASDAQ Composite Index had a 10-year annualized return of 29.02%. At that time, the industry weights for individual securities were as follows:
- Technology: 48.39%
- Communications: 4.18%
- Healthcare: 10.04%
- Financials: 5.19%
- Real Estate: 1.21%
- Consumer Discretionary: 20.35%
- Consumer Staples: 2.59%
- Industrials: 6.14%
- Basic Materials: 0.43%
- Energy: 0.73%
- Utilities: 0.75%
Top Securities in the NASDAQ Composite Index
As of November 5, 2021, the five largest securities by weight in the NASDAQ Composite Index were:
- Apple Inc.
- Microsoft Corp.
- Amazon.com Inc.
- Alphabet Inc.
- Meta Platforms Inc.
NASDAQ Composite Index vs. NASDAQ-100 Index
There are some similarities and differences between the NASDAQ Composite Index and the NASDAQ-100 Index.
The NASDAQ-100 Index, a specialized index launched in 1985, is a group of 102 securities issued by 100 of the largest non-financial American and international companies listed on the NASDAQ, excluding financial securities. Therefore, it is influenced by the same major companies, but the NASDAQ-100 does not track as many stocks.
An investor in a mutual fund or an exchange-traded fund that tracks the NASDAQ-100 invests in fewer companies compared to an investor who invests in a mutual fund or an exchange-traded fund that tracks the NASDAQ Composite Index.
What this means for individual investors
The NASDAQ Composite Index provides investors with an indication of how stocks are performing, particularly technology stocks. Investors looking to achieve similar financial returns as those seen by this index have many options for investing in assets aimed at mirroring its performance.
The easiest way to invest in a manner that achieves results similar to the NASDAQ Composite Index is through a mutual fund or an exchange-traded fund that passively tracks the index. These assets are available through brokers.
Read the prospectus carefully to ensure that the investment you are considering tracks the index you wish to follow, such as the NASDAQ Composite Index or the NASDAQ-100 Index.
Source:
https://www.thebalancemoney.com/nasdaq-composite-index-5195047
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