The Nasdaq Composite index is one of the most widely followed indices in the world and the best-known of all the many thousands of indices bearing the Nasdaq name.
Tending to be thought of by many investors as a “technology” index, the Nasdaq Composite is in fact home to companies from a range of sectors, though a large proportion of its constituents are indeed technology stocks.
Minnows to mega stocks
With the Nasdaq Composite including every single company listed on the Nasdaq stock exchange, its member firms include relatively unknown minnows right up to the mega stocks such as Apple, Microsoft and Amazon. In all, the Nasdaq Composite includes well over 3,000 firms.
By market cap, the Nasdaq is the second-largest stock exchange in the world, behind only the New York Stock Exchange (NYSE). A major factor that differentiates it from the NYSE is that alongside the domestic names, it also incorporates firms that are based outside the US.
What is Nasdaq index?
The Nasdaq Composite was established in 1971, at the same time as the Nasdaq stock exchange itself.
The NASDAQ acronym arose from the National Associate of Securities Dealers, which subsequently sold on the business in 2000/2001. Both the Nasdaq stock exchange and the Nasdaq indices are now owned by Nasdaq, Inc.
While the Nasdaq Composite tracks the performance of all the stocks listed on the Nasdaq stock exchange, this amounted to only 50 companies when it began. Attesting to Nasdaq´s success over the years, the index and stock exchange it mirrors have grown to include over 3,000 stocks.
In 1985, the Nasdaq-100 index came into being, representing the largest domestic and international, non-financial companies listed on the Nasdaq stock exchange.
The Nasdaq-100 incorporates firms across major industry groups such as computer hardware and software, telecommunications, biotechnology and retail/wholesale trade.
At this point, Nasdaq also established the Nasdaq Financial-100 index to represent the biggest financial services companies listed on the Nasdaq exchange.
Among the other Nasdaq indices followed by investors is the Nasdaq Biotechnology index, a benchmark incepted in 1993 to track the performance of biotechnology and pharmaceutical companies.
Low fees and requirements
Considerably lower listing fees and minimum requirements versus the NYSE have been instrumental in attracting smaller firms to list on the Nasdaq stock exchange.
The lower listing fees and requirements are especially attractive to firms in their relatively early stages of development that are keen on raising funds from US-based investors.
Smaller companies that have recently listed on the Nasdaq include UK-based biopharmaceutical firm Verona Pharma; it managed to raise $78m earlier this year through an IPO.
In tandem, the Nasdaq still retains mega stocks such as Apple, Microsoft, Amazon, Facebook and Alphabet.
In terms of sector weightings, technology firms continue to dominate the Nasdaq Composite, accounting for around 44% of the index´s market cap.
Consumer services and healthcare are the next biggest groups in the index, at approximately 21% and 13% respectively. Lower down in the pecking order are financials (8%), industrials (6%) and consumer goods (5%).
Given the Nasdaq Composite´s large proportion of technology stocks, the index was especially impacted by the dot-com bubble.