Nasdaq-100: A benchmark for tomorrow's global economy

Investors and financial professionals have relied on the Nasdaq-100® Index for 40 years now as a gauge of the modern economy.

First introduced in 1985 with scrappy innovators like Apple and Microsoft, the Nasdaq-100 also helps power investment strategies like Invesco QQQ ETF (also known as Invesco QQQ). The index follows some of the largest companies listed on the Nasdaq and is typically associated with technological innovation, research & development, and growth.

According to Nasdaq, the index aims to track the performance of “both established industry giants and up-and-coming innovators to provide a reflection of the ever-evolving business and technology landscape, where groundbreaking advancements are constantly being made.”

In the U.S., exchange-traded funds (ETFs) designed to follow the Nasdaq-100, including Invesco QQQ, have about $323 billion in assets.¹ The index’s popularity may be a result of its constituents’ demonstrated ability to be nimble and adapt to shifting trends in the market.

One example is Amazon. Originally started as an online book retailer, the company now manages artificial intelligence (AI)-powered fulfillment centers. Or Nvidia’s evolution as a provider of gaming graphics chips into a driving force behind the AI revolution, powering everything from data centers to autonomous vehicles with its cutting-edge technology.

The benchmark to beat

A focus on growth and innovation may be one reason why the Nasdaq-100 has been a difficult index for other U.S. large-cap and core equity benchmarks to beat.

Since January 1, 2008, the Nasdaq-100 has delivered a cumulative total return of 1,092%, more than double the 460% return of the S&P 500® Index.² In turn, Invesco QQQ’s NAV has delivered a total return of 724% during the same time period. That works out to an annualized return of 15.69% for the Nasdaq-100 and 15.46% for Invesco QQQ compared with 10.66% for the S&P 500, although the Nasdaq-100 and Invesco QQQ have been slightly more volatile with a standard deviation of 18.93 and 18.91, respectively, vs. the S&P 500’s 15.95.³

Click for standardized performance. Performance  data quoted represents past performance, which is not a guarantee of future results. Investment returns and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than performance quoted. An investor cannot invest directly in an index. Index returns do not represent Fund returns. Fund performance shown at NAV. Invesco QQQ’s total expense ratio is 0.20%.

The S&P 500 has certainly been around longer, launching in 1957 while the Nasdaq-100 was first calculated in 1985.⁴ Invesco QQQ, which launched in March of 1999, has tracked the Nasdaq-100 for more than 25 years. Historical performance over the past 17 years has favored the Nasdaq-100, which provides access to the 100 largest non-financial companies listed on the Nasdaq.

Homing in on disruption and innovation

Why has the Nasdaq-100 historically outperformed over the past 17 years? While there have been several factors at work, one of the most important reasons has been the strong performance of innovative technology stocks over the past decade, particularly the technology bellwether companies.⁵

Although the Nasdaq-100’s overweight exposure to the outperforming tech sector, when compared to the S&P 500, has been a tailwind for the past 10 years it’s important to remember that the benchmark is much more than just a tech index. The Nasdaq-100 and Invesco QQQ include companies from other sectors, including consumer product manufacturers and healthcare organizations that are transforming their respective industries to help drive growth. After all, the tech sector doesn’t have a monopoly on companies driving innovation.

Some of the world’s most innovative and cutting-edge companies, particularly those located in Silicon Valley, have opted to list their stocks on the Nasdaq, a trend that doesn’t seem destined to end anytime soon. As a result, it’s not surprising that many firms want to align their brands with the innovative stamp of Nasdaq, which introduced the world’s first electronic trading platform in 1971.

An index built for the future

Although the Nasdaq-100 has a relatively shorter track record and is more concentrated in tech than the S&P 500, investors may want to consider which index better reflects where the world appears to be headed in the future. Think: AI. It’s easy to get a handle on a company’s commitment to innovation when you take a look at its spending on research and development (R&D).

The transparent, rules-based inclusion methodology of the Nasdaq-100 may also appeal to some investors. On the other hand, the stocks in the S&P 500 are chosen by an index committee, which introduces the potential for human error and biases. For example, Tesla – one of the most innovative companies in recent memory – didn’t join the S&P 500 until late 2020, whereas the stock was added to the Nasdaq-100 in July 2013.

Key takeaways:

• The Nasdaq-100, which is tracked by Invesco QQQ, provides exposure to a wide variety of industries, including many cutting-edge technology companies.
• The Nasdaq-100 has outperformed the S&P 500 in recent years partly due to the strength of cutting-edge companies innovating in their sectors.
• AI and other technological advances may provide a tailwind to companies committed to R&D and disrupting their industries.

Bottom line: When evaluating a core equity index, it’s important to examine if the index is looking backward at an outdated economy or forward toward the companies poised to shape the world’s high-tech future.