• April 12, 2024

What is the Nasdaq Composite, and What Companies are in It?

IIn 1971, Nasdaq changed the financial markets with the introduction of the world’s first electronic stock market, eliminating the need for a trading floor and in-person trading. 50 years later, it is the world’s largest electronic exchange and the second largest in terms of market capitalization. In addition to being home to trillion dollar companies, Nasdaq is a name that symbolizes innovation, growth, diversity, and global appeal.

The universe of companies listed on the Nasdaq Stock Market is best represented by the Nasdaq Composite Index (COMP). Here’s a look at the Nasdaq Composite and how to invest in it.

Who is on the Nasdaq Composite?

The Nasdaq Composite Index, popularly referred to by the media as “The Nasdaq,” comprises more than 3,000 stocks, all of which are listed on the Nasdaq Stock Market. The Nasdaq Composite is as old as the stock market and is different from another popular index, the Nasdaq-100. Created in 1985, this index is a more compact index that includes the top 100 (hence the name) non-financial companies listed on the Nasdaq stock exchange.

The Nasdaq Composite is a Market capitalization weighted index, simply representing the value of all publicly traded stocks. The eligible securities set includes common stocks, common stocks and common equivalents such as ADRs. However, Convertible bonds, Warrants, Nasdaq-listed closed-end funds, Exchange Traded Funds (ETFs), preferred stocks and other derivative securities are excluded.

Regarding the Industry breakdownTechnology dominates almost half of their weight. Consumer services ranks second at almost 20%, while healthcare ranks third at almost 10%.

Next up are Consumer Staples, Financials, and Industrials with allocations of 7.61%, 6.61% and 6.09%, respectively. Industries like Utilities, Oil & Gas, Materials, and Telecommunications each have less than 1%.

In terms of the number of companies in any given industry, healthcare is a clear winner with more than nine hundred companies.

The makeup of the Nasdaq Composite is a mix of long-established companies that have been public since their inception and newcomers to the IPO, companies that have grown out of OTC exchanges or have moved from other exchanges.

For example, in this last example, PepsiCo (PEP), Kraft Heinz (KHC), AstraZeneca (AZN) and Honeywell International (YOU) are some of the companies that moved to Nasdaq from the New York Stock Exchange (NYSE).

The current top 20 components of the index are:

performance

The Nasdaq Composite’s performance is often compared to that of the S&P 500 and the Dow Jones. After the dot-com bubble from 2003 to 2020, Nasdaq outperformed the S&P 500 in 12 out of 18 years and outperformed the Dow Jones 14 times. After the great 2009-2020 recession, Nasdaq outperformed the S&P 500 and Dow Jones ten times.

exposure

The easiest way for individual investors to participate in the Nasdaq Composite is through Fidelity’s exchange-traded fund. The Fidelity Nasdaq Composite Index ETF, launched in 2003 (ONEQ) tracks the broadly based Nasdaq Composite Index. According to the prospectus, the fund uses statistical sampling techniques that take into account factors such as capitalization, industry exposure, dividend yield, price-to-earnings (P / E) and price-to-book (P / B) ratio, and earnings growth to maintain a portfolio of Create securities that are listed in the Nasdaq Composite Index and that have an investment profile similar to that of the entire index. “

It invests at least 80% of its assets in common stocks that are included in the index. The ETF has $ 4.1 billion under management and an expense ratio of 0.21%. In addition to the ETF, the Fidelity Nasdaq Composite Index Fund (FNCMX) can also be used to gain exposure to the Nasdaq Composite.

Last word

The Nasdaq Composite has evolved over time and is now considered more mature, profitable, and relatively less tech-intensive than it was two decades ago. It represents a more innovative and growth-oriented industry.

Disclaimer of Liability

Sector weights and key constituents as of May 6, 2021. Information based on Nasdaq Global Indexes Research and Factsheets. The author has no position in the mentioned index. Investors should not view the above information as a de facto recommendation, but rather as an idea for further consideration. The report has been carefully prepared and any exclusions or errors in it are wholly unintentional.

The views and opinions expressed are those of the author and do not necessarily reflect those of Nasdaq, Inc.

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