The Nasdaq 100 Index is a collection of the 100 largest and most actively traded companies listed on the Nasdaq Stock Exchange. The index includes companies from various industries such as manufacturing, technology, healthcare and others. Financial sector companies such as commercial and investment banks are not included.

 

Understanding the Nasdaq 100 Index

To be included in the Nasdaq 100 index, index securities must be listed exclusively on the Nasdaq exchange. These may include ordinary shares, U.S. depositary receipts, and traceable shares. They must also be non-financial and traded on an exchange for at least three months.

The Nasdaq 100 liquidity criteria require each security to have a minimum average daily trading volume of 200,000 shares (measured over the previous three calendar months). There are no market capitalization requirements.

The Nasdaq 100 index is built using a modified capitalization method that uses individual weights of items included in it according to their market capitalization.

Weighing limits the influence of the largest companies and balances the index among all participants.

The Nasdaq revises the composition of the index each quarter and adjusts weights if allocation requirements are not met.

 

Composition of the Nasdaq 100 Index

The Nasdaq 100 index includes assets in a variety of sectors other than financial services. There are eight sectors in total, which as of September 30, 2023 are as follows:

  • Technology (57.1%);
  • Consumer discretionary sector (18.73%)
  • Health care (7.12%);
  • Telecommunications (5.48%);
  • Industry (4.87%);
  • Consumer goods (4.23%);
  • Utilities (1.24%);
  • Basic materials and energy (0.96%)

The ten largest companies by weight in the Nasdaq 100 index as of September 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

The Nasdaq rebalanced the Nasdaq 100 on July 17, 2023.

Component companies’ weights have been rebalanced to eliminate excessive concentration in the index and make it less dependent on just a few large companies. The Nasdaq rules state that if stocks weighing more than 4.5% in the index together make up more than 48% of the index, then the index should be revised.

The Nasdaq has only performed rebalancing twice, in 1998 and 2011.

The latest special rebalancing was driven by recent gains in tech stocks and Tesla shares, which saw the combined weight of the top five companies (Microsoft, Apple, Nvidia, Amazon and Tesla) pass the 48% threshold. The special rebalance has reduced their weight and increased the weight of other companies such as Alphabet, Meta Platforms, Netflix and Costco.

The rebalancing is intended to affect the performance and volatility of the index and individual stocks, as some investors may adjust their portfolios to fit new weights. However, this is likely to be temporary, as the rebalancing does not affect the fundamentals or outlook of any of the companies in the index.

 

Investing in the Nasdaq 100 Index

The Nasdaq 100 Index tracks the top 100 companies by trading with modified market capitalization on exchanges, so investors cannot directly invest in it. However, there are many other ways to access the index without buying individual stocks included in the index.

For example, traders can invest in exchange-traded funds (ETFs), mutual funds, futures, and options. For the average investor, choosing an ETF is the easiest and least risky way to access the companies in the index.

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