Overview:
The Nasdaq Composite is a broad market index that encompasses about 4,000 issues
traded on the Nasdaq National Market. The index first started in February of
1971 with a base value of 100.00. Though it is not as actively traded as its
much smaller cousin, the Nasdaq 100, this index is more commonly referred to by
investors and the financial press. When the question “How did the Nasdaq do
today?” is asked, the answer is usually the value of this index.
Composition:
The Nasdaq Composite Index is comprised of virtually every firm that trades on
the exchange. The index is calculated based on a market cap weighting, meaning
that the largest firms have the greatest impact on the index's value. The top 10
stocks in the index account for greater than 30% of the Nasdaq Composite's
value--a truly remarkable statistic given that the index contains roughly 4,000
firms. Microsoft (MSFT) alone comprises about 9% of the index.
| Company |
Symbol |
% of Index
|
| Microsoft |
MSFT |
9.0%
|
| Intel |
INTC |
5.9% |
| Cisco Systems |
CSCO |
5.4% |
| Dell |
DELL |
2.9% |
| Amgen |
AMGN |
2.5% |
| Oracle |
ORCL |
2.1% |
| Qualcomm |
QCOM |
1.8% |
| eBay |
EBAY |
1.5% |
| Comcast |
CMCSA |
1.3% |
| Applied Materials |
AMAT |
1.2% |
|
| Sector |
% of Index
|
| Comp. Software/Hardware |
52.1% |
| Healthcare |
13.6% |
| Financials |
11.0% |
| Consumer Discretionary |
8.5% |
| Industrials |
5.5% |
| Telecommunications |
5.2% |
| Consumer Staples |
1.5% |
| Materials |
1.0% |
| Energy and Utilities |
0.6% |
| Other |
1.1% |
|
Positives:
The Nasdaq Composite is one of the premier indices in the world. Because
technology firms account for roughly 2/3 of the index, investors often use the
Nasdaq as a guide to help them determine the strength of technology stocks.
Drawbacks:
Because this index contains many unproven and speculative companies, it tends to
be highly volatile relative to the other major indices. In addition, given that
it represents such a small portion of the overall market, investors cannot use
it to infer how the overall economy is faring.
How can I trade/invest in this index?
In September 2003 Fidelity Investments introduced the Fidelity Nasdaq Composite
Index Fund (symbol ONEQ)--an exchange-traded fund that tracks the performance of
this index. Much like any other ETF, investors can easily buy and sell this fund
during the day. In addition, the fund carries a small 0.30% expense ratio.
However, it has not yet gained the popularity of the QQQ (an ETF that tracks the
Nasdaq 100 Index), so liquidity may be more of an issue if you're attempting to
trade this fund. And because it is more diversified, volatility should be
slightly lower than that of QQQ. In general, because QQQ has a lower expense
ratio and higher liquidity, most investors choose to trade that fund as opposed
to ONEQ.
Additional Information:
Nasdaq Composite fact sheet
Fidelity ONEQ
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delivered total returns of +297.3% since 2003, and
it ranks in the top 10% of its category over the past decade.
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