The financial investment space can often appear somewhat daunting, not least because of the sheer number of abbreviations floating around. Whether it’s the NASDAQ, NYSE or LSE, these three exchanges are collectively responsible for trillions of dollars worth of trading each and every day. But what exactly is the NASDAQ?
In a nutshell, the NASDAQ is a U.S. based stock exchange that is dominated by technology stocks. This will cover the likes of Apple, Microsoft, IBM and Facebook, among hundreds of other transnational organizations.
If you’re looking to find out exactly what the NASDAQ actually is, how it works and what sort of companies it lists, then you’ve come to the right place. We’ll also explain how you can make an investment in to the NASDAQ yourself.
Let’s starting by exploring what the NASDAQ actually is.
What is the NASDAQ?
The National Association of Securities Dealers Automated Quotations, or quite simply just the ‘NASDAQ’, is a U.S. based stock exchange that is well-known for listing some of the largest technology companies in the world. When the exchange first launched in 1971, it became the first ever marketplace to issue electronic-based stock quotes.
Just like in the case of other major stock exchanges such as the London Stock Exchange (LSE) or New York Stock Exchange (NYSE), the NASDAQ acts as an iternmeditary between blue-chip companies and the open marketplace.
Although the NASDAQ is best regarded as the go-to-place for innovative technology-based stocks, it also lists companies from a range of other industries. This includes organizations from within the Finance, Energy, Transportation and Healthcare sectors.
The NASDAQ is also a very important platform for large companies that are looking to go public for the very first time. Through the use of an initial public offering (IPO), companies can use the NASDAQ to facilitate their fundraising campaign. This is where shares are distributed in exchange for investor funds.
The largest ever IPO to be facilitated by a NASDAQ listing was that of Facebook in 2012. In total, the social media company were able to raise a whopping $16 billion.
So now that you have a better insight into the background of the NASDAQ, let’s take a closer look at the type of companies it lists.
What Sort of Companies Does the NASDAQ list?
As noted above, the vast majority of the 3,000+ companies listed on the NASDAQ operate from within the technology space.
In fact if you take a moment to think of some of the biggest technology brands in the world, you’ll like see them listed on the NASDAQ. Right at the very top of that list are the likes of Microsoft, Alphabet, Amazon, Facebook, Intel, and Cisco.
However, we should also note that the NASDAQ exchange does not only list companies. On the contrary they also list a full range of other financial instruments such as futures, options and ETFs (Exchange Traded Funds). Regarding ETFs, this covers commodities surrounding the likes of Gold, Silver, Uranium and Oil.
Moreover, fully in-line with the platform’s appetite for industry-leading innovation, there have also been rumours that NASDAQ are looking to get involved in the cryptocurrency and blockchain asset space. One such example of this is the recent announcement that cryptocurrency market indices would be heading to the NASDAQ real-time data feed.
How has the NASDAQ Performed Historically?
In order to ascertain how companies listed on the NASDAQ have performance historically, it is crucial to make reference to one of the platform’s leading index trackers.
For those unaware, the vast majority of major stock markets have a leading index tracker, which not only allows investors to ascertain how a particular marketplace is performing, but it also provides a framework that allows investors to speculate on the specific stock market in question.
Whilst the NYSE and LSE have the likes of the Dow Jones and FTSE 100 respectively, the NASDAQ has the NASDAQ-100. Let’s explore this in more detail below.
What is the NASDAQ-100?
In a nutshell, the Nasdaq-100 is an index that tracks the share price movement of the 100 largest stocks listed on the NASDAQ. Once again, although much of the NASDAQ-100 is made up of technology firms, other industries such as biotechnologies, retail and healthcare are also included.
However, the index does not include financial institutions, such as those from within the investment banking, asset management or corporate banking spaces. In order to replicate a fair representation of the wider NASDAQ marketplace, the NASDAQ-100 utilizes a weighting system that takes into account over-bearing market capitalizations, with the view of limiting the influence of the indexes largest firms.
NASDAQ-100 constituents must also report their financial performance levels on both a quarterly and annual basis, and have been listed on the proprietary NASDAQ stock market for a minimum of two years.
In order to gauge the historical movement of the NASDAQ-100, we should make reference to some key dates. When the index was first launched in 1985, the NASDAQ-100 opened at 250 points. Whilst the index then experienced steady gains over the subsequent decade, things really took ofF in the mid-to-late 1990s in response to the Dot.com boom.
Before the crash came to fruition, the NASDAQ peaked at a remarkable 5,132.52 points. Regrettably, it wasn’t until 2015 – a mere 15 years, before the NASDAQ was able to recover its previous all-time highs.
However, since then, the stock market has continued to grow. At the time of writing in March 2019, the NASDAQ-100 index is priced at just over the 7,000 points mark. Once again, this illustrates that investing is all about timing.
So now that you know how performance of the NASDAQ is tracked, in the next section of our guide we’ll show you how you can invest.
How do you Invest in the NASDAQ?
When it comes to investing in the NASDAQ stock exchange, you don’t actually invest in the exchange platform itself. On the contrary, you have alternative options to consider.
Firstly, you have the choice of investing in individual stocks that are listed on the main NASDAQ stock exchange. This can be achieved with ease via a stock broker, dealer or even a CFD.
However, if you are more inclined to speculate on the performance of the NASDAQ collectively, then you’ll want to consider either an index fund or an ETF.
Let’s start with an index fund.
Invest in the NASDAQ via an Index Fund
An index fund is essentially a fund that aims to track the price of an index like-for-like. How close the index fund gets to the official index depends on a number of factors. Most notably, this is whether the fund is actively or passively managed.
For example, if the fund is passively managed, the fund will aim to replicate the exact performance of the NASDAQ stock market. On the other hand, an actively managed index fund might make some adjustments, such as giving additional weighting to certain sectors.
If the fund is actively managed, then the underlying aim will be to beat a proprietary NASDAQ index, such as the NASDAQ-100.
Read: What is an Index Fund?
One of the most well-regarded with respect to a passively managed fund is the USAA Nasdaq 100 Index Fund.
The method used by this particular fund is to use their own assets to purchase all of the companies that make up the NASDAQ-100. It does so by allocating the exact same weighting mechanisms as employed by the NASDAQ-100, with the view of mirroring its performance.
In terms of pricing , the USAA Nasdaq 100 Index Fund charges an expense ratio of 0.54%. While in comparison to more conventional stock funds this is reasonably competitive, in the world of index funds this is somewhat expensive.
Nevertheless, the fund has tracked the main index extremely well over the past 10 years, averaging annual gains of approximately 12%.This is just a smudging smaller than the actual gains of the NASDAQ-100 itself.
Invest in the NASDAQ via an ETF
The second option available to you in your search for a NASDAQ investment facility is that of an ETF. ETFs are hugely popular financial instruments that are designed to track specific marketplaces. This can of course include stock markets such as the NASDAQ, FTSE and NYSE, as well as commodities such as Gold and Oil.
Read: What is an ETF?
Although ETFs are very similar to index funds, there is a distinctive difference. The way to view an ETF is in a similar light to a real world stock. The reason for this is that when you invest in an ETF, it is freely tradeable on the open marketplace. As such, you should view the value of an ETF based on its current marketplace price. This isn’t the case with an index fund.
Nevertheless, If you like the sounds of a NASDAQ ETF, then it might be worth taking a look at the Fidelity Nasdaq Composite Index ETF. Established back in 2003, Fidelity has an expense ratio of just 0.20%, which is highly reasonable.
Furthermore, the ETF allocates 97% of its assets in company stocks with the aim of replicating the performance of the NASDAQ with close precision.
We have reviewed a number of investing platforms and robo-advisors which are able to give you access to the NASDAQ via funds and ETFs. Take a look at our reviews: