Will Nasdaq-100 Index Gain Traction from the Reshuffling? - Analyst Blog - American Airlines Gr (NASDAQ:AAL)

Nasdaq OMX Group Inc. (NDAQ) announced the re-ranking of its Nasdaq-100 index, which is the leading global index that comprises non-financial securities based on market capitalization. The annual review is an attempt to strengthen its non-transaction base revenue.

Launched in Jan 1985 and traded as ‘NDX', several small-, mid- and large-cap, fast growing companies of the core trade sector such as computer hardware & software, telecommunications, retail & wholesale trade and biotechnology have found place in the Nasdaq-100 index. These U.S. and internationally-based companies are ranked on their market value and solid growth history such as Apple Inc. (AAPL), Comcast Corp. (CMC SA) and Adobe Systems Inc. (ADBE).

The technological, basically non-financial, stocks are traded as options derivatives against the Nasdaq-100 that allow the investor to earn from changes in the index value with a limited amount of money at risk. Meanwhile, the premiere set of high-ranked stocks that the index holds makes it the bellwether index of such tech stock portfolio.

Furthermore, the Nasdaq market data used in the ranking review is updated with total shares outstanding at the end of October every year and is submitted to the Securities Exchange Commission in a public filing, by the end of November.

Individual investors can access this index through exchange traded funds (ETFs) like Nasdaq 100 Trust that was previously known as QQQQ. Nasdaq-100 is also the benchmark index for other popular ETFs.

Major Additions & Deletions

Accordingly, this year, Nasdaq has added about 44 rapid-growth biotechnology companies, along with software, airline and manufacturing companies like Electronic Arts Inc. (EA), American Airlines Group Inc. (AAL) and Lam Research Corp. (LRCX), respectively.

Notably, Nasdaq also added lower tier shares of some of the high-potential stocks like the Class B shares of Twenty-First Century Fox and Class C shares of Liberty Global plc. At the same time, a handful of underperforming stocks like Expedia Inc. (EXPE), F5 Networks Inc. (FFIV) and Maxim Integrated Products Inc. (MXIM) were dropped from the Nasdaq-100 list.

Growth Rationale for NDX

Through this index, Nasdaq incorporated a multiple asset class that diversifies risk and maximizes return. Moreover, annual re-ranking helps maintain strategic discipline and firmness in this index portfolio.

The reshuffling further signals the company's promptness to capitalize on the volatility that the markets offer from time to time, and gain from a growth driven portfolio. These efforts will not only accelerate Nasdaq's operating leverage but also improve volumes and competitiveness.

The efficiency of the Nasdaq-100 index or NDX is also reflected by its consistently solid performance, yielding one-year and five-year returns of about 20.3% and 132%, respectively. This is against the S&P 500 index that clocked one-year and five-year returns of about 12.1% and 79.8%, respectively.

The solid performance and leading position of the Nasdaq 100 index also indicates the investors' growing risk appetite that equates to affinity for high growth-potential assets. Economic recovery and rising volatility has opened up new avenues of growth in the tech sector, given the increased listings witnessed in tech and digital commerce startups lately.

Going forward, we believe the rapidity of tech companies will continue to boost investors' sentiment in the Nasdaq-100 index, thereby auguring a healthy growth outlook.

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Will Nasdaq-100 Index Gain Traction from the Reshuffling? - Analyst Blog

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