What Is the Nasdaq Composite Index?

Nasdaq Composite Index Explained in Less Than 4 Minutes

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The Nasdaq Composite Index is a stock market index that follows nearly 3,400 stocks listed on the Nasdaq stock exchange, which includes many high-growth technology stocks.

It’s weighted according to the market capitalization of the companies on the Nasdaq exchange. Learn more about what the Nasdaq Composite Index is, how it is composed, and how investors may use it in their investing strategies.

Definition of Nasdaq Composite Index

The Nasdaq Composite Index is one of the most widely tracked indexes in the United States, along with the S&P 500 and the Dow Jones Industrial Average (DJIA). It follows nearly 3,400 stocks, including many high-growth technology stocks. The Nasdaq Composite was launched in 1971. The Nasdaq in its name stands for National Association of Securities Dealers Automated Quotations.

Technology stocks—including software, computer and internet companies, among others—dominate almost half of the Nasdaq Composite. They include behemoths such as Apple, Facebook, Alphabet (the parent company of Google), Amazon, and Netflix.

The Nasdaq Composite includes U.S. companies as well as companies with headquarters outside of the U.S. that are listed on the Nasdaq or dually listed on another U.S. exchange prior to January 2004.

For example, Baidu and BiliBili, both China-based companies, are listed on the Nasdaq exchange and are included in the Nasdaq Composite.

The Nasdaq Composite includes common shares of stock, American Depository Receipts (ADRs), limited liability companies, limited partnership interests, or units of beneficial interest. Security types that are generally ineligible for the index include Nasdaq-listed closed-end funds, convertible debentures, exchange-traded funds (ETFs), preferred stocks, rights, warrants, units and other derivative securities.

How the Nasdaq Composite Index Works

The Nasdaq Composite Index is an index weighted by market capitalization, or value, of the companies with shares on the Nasdaq exchange. This means the amount of each component in the index is determined by the size of the component’s market capitalization at the end of each trading day. So companies with a greater market capitalization have a greater impact on the overall index value.

The weight of each index component is determined using the following formula:

Weight = (Component Market Capitalization / Total Index Market Capitalization) X 100 

Nasdaq Composite Composition

The Nasdaq Composite is known for being a technology-heavy index, but it also follows stocks in other sectors as well.

As of June 30, 2021, the Nasdaq Composite Index had a 10-year annual return of 17.99%. At that time, the industry weights of its individual securities were:

Industry Weight
Technology 47.97%
Telecommunications 4.39%
Health Care 10.31%
Financials 4.81%
Real Estate 1.27%
Consumer Discretionary 20.28%
Consumer Staples 2.63%
Industrials 6.33%
Basic Materials 0.45%
Energy 0.81%
Utilities 0.75%

Top 5 Securities in the Nasdaq Composite

As of June 30, 2021, the five largest securities by weight in the Nasdaq Composite were:

1. Apple Inc.

2. Microsoft Corp.

3. Amazon.com Inc.

4. Facebook Inc.

5. Alphabet Inc.

Nasdaq Composite Index vs. Nasdaq-100

The Nasdaq Composite Index has some similarities and differences with the Nasdaq-100 Index.

The Nasdaq-100, a speciality index that debuted in 1985, is a collection of 102 securities issued by the 100 largest non-financial U.S. and international companies listed on the Nasdaq stock exchange, excluding financial stocks. So, they are influenced by the same major companies, but the Nasdaq-100 does not track nearly as many stocks.

An investor in a mutual fund or ETF that tracks the Nasdaq-100 will be investing in fewer companies than one who invests in a fund or ETF that tracks the Nasdaq Composite Index.

Nasdaq Composite Index Nasdaq-100 Index
Comprised of all domestic and international stocks listed on the Nasdaq Stock Market, totaling nearly 3,400 at the end of 2020 Comprised of securities from 100 of the largest (by market capitalization) domestic and international non-financial companies on the Nasdaq stock market exchange
Includes financial stocks Excludes financial stocks

What It Means for Individual Investors

The Nasdaq Composite provides investors with a gauge of how well stocks, particularly technology stocks, are faring. Investors who want to achieve the same returns as this index have several options for investing in assets that aim to mirror its performance.

The easiest way to invest in a way that achieves the results of the Nasdaq Composite Index is through a mutual fund or exchange-traded fund (ETF) that passively tracks the index. These assets are available through brokerages.

Read the prospectus carefully to make sure the investment you’re considering tracks the index you want to follow—for example, the Nasdaq Composite Index or the Nasdaq-100 Index.

Key Takeaways

  • The Nasdaq Composite Index is a market capitalization-weighted collection of nearly 3,400 stocks, all of which are listed on the Nasdaq stock exchange.
  • The index comprises nearly 50% technology stocks, with discretionary consumer stocks, and health care stocks comprising another 30.59%.
  • The Nasdaq composite is different from the Nasdaq-100 Index, which tracks the 100 largest U.S. and international companies listed on the Nasdaq stock exchange, excluding financial stocks.