How to invest in Nasdaq index from India? If this is what you are looking for, here is a primer on investing in US stocks especially listed on the Nasdaq stock market. Nasdaq today has become a bellwether index for stock market investors worldwide. Which sectors of the economy are predominant in the index and which stocks form the frontline, we take a look at the list of top holdings in Nasdaq. But, before we proceed, here’s a teaser – there is Nasdaq 100 index and there is the Nasdaq Composite index. Here, we are focussing on the Nasdaq Composite index while for Nasdaq 100, you can read about it here.
To keep the differentiation simple, the Nasdaq Composite Index comprises more than 3,000 stocks, all of which are listed on the Nasdaq Stock Market while Nasdaq 100 is a more compact index comprising of the top 100 non-financial companies listed on the Nasdaq exchange.
1. Nasdaq Composite index – What is it
Nasdaq Composite Index represents the Nasdaq Stock Market in the best possible manner. Nasdaq, in itself, is home to some of the largest trillion-dollar companies and is the world’s largest electronic stock exchange and the second-largest stock exchange in terms of market capitalization.
The Nasdaq Composite is a market-cap-weighted index, representing the value of all its listed stocks. The set of eligible securities includes common stocks, ordinary shares, and common equivalents such as ADRs. However, convertible debentures, warrants, Nasdaq-listed closed-end funds, exchange-traded funds (ETFs), preferred stocks, and other derivative securities are excluded.
2. Nasdaq Composite index – Industry breakup
In terms of the industry breakdown, technology dominates almost half of its weightage. With close to 20%, the consumer services sector ranks second, while health care is third at almost 10%.
Next in line are consumer goods, financials, and industrials, with allocations of 7.61%, 6.61%, and 6.09%, respectively. Industries such as utilities, oil & gas, basic materials, and telecommunications each have less than 1%.
When seen in terms of the number of companies from a specific industry, health care is a clear winner, with more than nine hundred companies.
3. Nasdaq Composite index – Companies
The composition of the Nasdaq Composite is a mix of long-established companies that have been on the exchange since inception. From IPO newcomers to companies that grew from OTC exchanges or switched from other exchanges, there are variety of companies.
On that last one, for example, PepsiCo (PEP), Kraft Heinz (KHC), AstraZeneca (AZN), and Honeywell International (HON) are some of the companies that moved to Nasdaq from the New York Stock Exchange (NYSE).
The top 20 holdings of the Nasdaq Composite index are:
Alphabet Class C (GOOG)
Alphabet Class A (GOOGL)
Texas Instruments (TXN)
Costco Wholesale (COST)
The performance of the Nasdaq Composite is often compared with the S&P 500 and Dow Jones. After the Dot Com Bubble, from 2003-2020, Nasdaq outperformed the S&P 500 in 12 out of 18 years, and the Dow Jones 14 times. During the period 2009-2020, Nasdaq outperformed the S&P 500 and Dow Jones ten times.
5. Nasdaq Composite index – How to invest
The easiest way for individual investors to participate in the Nasdaq Composite is Fidelity’s exchange-traded fund. Launched in 2003, the Fidelity Nasdaq Composite Index ETF (ONEQ) tracks the broad-based Nasdaq Composite Index. In addition to the ETF, Fidelity Nasdaq Composite Index Fund (FNCMX) can also be used to take exposure to the Nasdaq Composite.
An Indian investor, you can open an international trading account and start investing in any individual stock or buy ETF’s. Opening a foreign trading account is simple and can be opened in a few days time after completing the registration, KYC, and fund transfer formalities.