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Nasdaq-100

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The NASDAQ-100 is a stock market index of 100 of the largest non-financial companies listed on the NASDAQ. It is a modified market value-weighted index. The companies' weights in the index are based on their market capitalizations, with certain rules capping the influence of the largest components. It does not contain financial companies, and includes companies incorporated outside the United States. Both of those factors differentiate it from the Dow Jones Industrial Average, and the exclusion of financial companies distinguishes it from the S&P 500 Index.

History

The NASDAQ-100 began on January 31, 1985 by the NASDAQ, trying to promote itself in the shadow of the New York Stock Exchange. It did so by creating two separate indices. This particular index, which consists of Industrial, Technology, Retail, Telecommunication, Biotechnology, Health Care, Transportation, Media and Service companies; and the NASDAQ Financial-100, which consists of banking companies, insurance firms, brokerage houses and mortgage companies. By creating these two indices, the NASDAQ hoped that mutual funds, options and futures would correlate and trade in conjunction with them.

The base price of the index was initially set at 250, but when it closed near 800 on December 31, 1993, the base was reset at 125 the following trading day, leaving the halved NASDAQ-100 price below that of the more commonly known NASDAQ Composite. The first annual adjustments were made in 1993 in advance of options on the index that would trade at the Chicago Board Options Exchange in 1994. Foreign companies were first admitted to the index in January 1998, but had higher standards to meet before they could be added. Those standards were relaxed in 2002, while standards for domestic firms were raised, ensuring that all companies met the same standards.

The all-time highs for the index, set at the height of the Dot-Com Bubble in 2000, stand above the 4,700 level, while its recent bear market lows in 2002 revolving around the Early 2000s Recession, the September 11, 2001 Attacks and the subsequent Afghan War occurred below the 900 point level. The NASDAQ-100 closed above the 2,200 point milestone on October 23, 2007 for the first time in over 80 months and reached an intraday high of 2,239.51 on October 31, 2007, the highest reached since February 16, 2001.

However, the index corrected below the 2,000 level in early 2008 amid the Late-2000s Recession, the United States Housing Bubble and the Global Financial Crisis of 2008. Panic focusing on the failure of the investment banking industry culminated in a loss of more than 10% on September 29, 2008, subsequently plunging the index firmly into bear market territory. The NASDAQ-100, with much of the broader market, experienced a Limit Down open on October 24 and closed at a 5½-year low of 1,036.51 on November 20, 2008. As of October 2010, the index trades around the 2,500 level amid optimism that the recent financial and economic woes which sprung up during late 2008, were easing and possibly coming to an end.

Investing

The NASDAQ-100 is often abbreviated as NDX in the Derivatives Markets. Its corresponding futures contracts are traded on the Chicago Mercantile Exchange. The regular futures are denoted by the Reuters Instrument Code ND, and the smaller E-mini version uses the code NQ. Both are among the most heavily traded futures at the exchange.

The NASDAQ-100 Trust Series 1 Exchange-traded fund, sponsored and overseen since March 21, 2007 by Invesco through PowerShares, trades under the ticker Template:Nasdaq2. On December 1, 2004, it was moved from the American Stock Exchange where it had the symbol QQQ to the NASDAQ and given the new four letter code QQQQ. It is sometimes referred to as the "Cubes", "Quad Qs" or simply as "The Qs". In 2000, it was the most actively traded security in the United States, and hit an all-time split adjusted intra-day trading high of $120.50 on March 24 of that year, but has since dropped to being within the top five after other stocks and ETFs such as the Standard & Poor's Depositary Receipts. On July 17, 2007, the ETF closed above $50 for the first time since early 2001. After reaching a peak of $55.07 on October 31, 2007, the Qs succumbed to a wider financial crisis along with a decline in technology spending and plunged towards a November 21, 2008 intra-day low of $25.05. But as of January 2010, the ETF trades near $46 a share, only down around 6% from its one year intra-day high of $48.57 on August 15, 2008.

ProShares issued by ProFunds offer other related NASDAQ-100 ETFs such as the 2x NYSE: QLD, which attempts to match the daily performance of the NASDAQ-100 by 200% and the Inverse 2x NYSE: QID, which attempts to match the inverse daily performance by 200%. For replicating 3x performance; there is the Nasdaq: TQQQ and for Inverse 3x, Nasdaq: SQQQ. ProFunds also issues Inverse Performance NYSE: PSQ for a bearish strategy on the index.

Standards

The NASDAQ has over the years put in place a series of stringent standards for which companies must meet before being included in the index. Those standards include the following:

  • Being listed exclusively on NASDAQ in either the Global Select or Global Market tiers.
  • Being listed for two years (or if it meets certain market capitalization standards, one year).
  • Having average daily volume of 200,000 shares.
  • Being current in regards to quarterly and annual reports.
  • Not being in bankruptcy proceedings.

Additionally, companies with multiple classes of stock are only allowed to have one class included in the index (usually the largest class in terms of market capitalization).

Yearly rebalancing and re-ranking

While the composition of the NASDAQ-100 changes in the case of delisting (such as transferring to another exchange, merging with another company, or declaring bankruptcy, and in a few cases, being delisted by NASDAQ for failing to meet listing requirements), the index is only rebalanced once a year, in December, when NASDAQ reviews its components, compares them with those not in the index, re-ranks all eligible companies and makes the appropriate adjustments.

There are two tools the NASDAQ uses to determine the market values of companies for the annual review:

  • Share Prices as of the last trading day in October (usually the 31st unless the 31st falls on a weekend).
  • Publicly announced share totals as of the last trading day of November (usually the 30th unless it falls on a weekend).

Those components that are in the top 100 of all eligible companies at the annual review are retained in the index. Those ranked 101 to 125 are retained only if they were in the top 100 of the previous year's annual review. If they fail to move into the top 100 in the following year's review, they are dropped. Those not ranked in the top 125, are dropped regardless of the previous year's rank.

A company will also be dropped if, at the end of two consecutive months, the component fails to have an index weighting of at least one-tenth of a percent. This can occur at any time.

The companies that are dropped are replaced by those who have the largest market value and are not in the index already. Anticipation of these changes can lead to changes in the stock prices of the affected companies.

All changes, regardless of when they occur, are publicly announced via press releases at least five business days before the change is scheduled to take place. The 2010 results of the re-ranking and rebalancing are expected to be announced on December 10 with the changes effective on December 20.

Differences from NASDAQ Composite index

The NASDAQ-100 is frequently confused with the Nasdaq Composite Index; the latter index (often referred to simply as "The Nasdaq") includes the stock of every company that is listed on NASDAQ (more than 3,000 all together) and is quoted more frequently than the NASDAQ-100 in popular media.

The NASDAQ-100 is a modified capitalization-weighted average. This particular methodology was created in 1998 in advance of the creation the NASDAQ-100 Index Trust, which holds portions of all NASDAQ-100 firms. The new methodology allowed NASDAQ to reduce the influence of the largest companies and to allow for more diversification.

The only time the index is to be rebalanced again is if:

  • One company is worth 24% of the index.
  • Those companies with a weighting of at least 4.5%, constitute 48% of the index.

Differences from other indices

In addition to its lack of financial companies, the Nasdaq-100 includes 15 companies incorporated outside the United States. Although the S&P 500 Index includes 5 non-U.S. companies, the Dow Jones Industrial Average has never included foreign companies. The NASDAQ-100 is also the only index of the three that has a regularly scheduled re-ranking of its index each year.

As of December 2009, the countries (excluding the United States) represented in the NASDAQ-100 are:

Components

This list is current as of December 21, 2009. An up-to-date list is available in the External Links section. It should be noted that this is an alphabetical list, and not a ranked list

  1. Activision Blizzard (ATVI)
  2. Adobe Systems Incorporated (ADBE)
  3. Altera Corporation (ALTR)
  4. Amazon.com, Inc. (AMZN)
  5. Amgen Inc. (AMGN)
  6. Apollo Group, Inc. (APOL)
  7. Apple Inc. (AAPL)
  8. Applied Materials, Inc. (AMAT)
  9. Autodesk, Inc. (ADSK)
  10. Automatic Data Processing, Inc. (ADP)
  11. Baidu.com, Inc. (BIDU)
  12. Bed Bath & Beyond Inc. (BBBY)
  13. Biogen Idec, Inc (BIIB)
  14. BMC Software, Inc. (BMC)
  15. Broadcom Corporation (BRCM)
  16. C. H. Robinson Worldwide, Inc. (CHRW)
  17. CA, Inc. (CA)
  18. Celgene Corporation (CELG)
  19. Cephalon, Inc. (CEPH)
  20. Cerner Corporation (CERN)
  21. Check Point Software Technologies Ltd. (CHKP)
  22. Cintas Corporation (CTAS)
  23. Cisco Systems, Inc. (CSCO)
  24. Citrix Systems, Inc. (CTXS)
  25. Cognizant Technology Solutions Corporation (CTSH)
  26. Comcast Corporation (CMCSA)
  27. Costco Wholesale Corporation (COST)
  28. Dell Inc. (DELL)
  29. DENTSPLY International Inc. (XRAY)
  30. DirecTV (DTV)
  31. DISH Network Corporation (DISH)
  32. eBay Inc. (EBAY)
  33. Electronic Arts Inc. (ERTS)
  34. Expedia, Inc. (EXPE)
  35. Expeditors International of Washington, Inc. (EXPD)
  36. Express Scripts, Inc. (ESRX)
  37. Fastenal Company (FAST)
  38. First Solar, Inc. (FSLR)
  39. Fiserv, Inc. (FISV)
  40. Flextronics International Ltd. (FLEX)
  41. FLIR Systems, Inc. (FLIR)
  42. Foster Wheeler Corporation (FWLT)
  43. Garmin Ltd. (GRMN)
  44. Genzyme Corporation (GENZ)
  45. Gilead Sciences, Inc. (GILD)
  46. Google Inc. (GOOG)
  47. Henry Schein, Inc. (HSIC)
  48. Hologic, Inc. (HOLX)
  49. Illumina, Inc. (ILMN)
  50. Infosys Technologies (INFY)
  51. Intel Corporation (INTC)
  52. Intuit, Inc. (INTU)
  53. Intuitive Surgical Inc. (ISRG)
  54. J. B. Hunt Transport Services (JBHT)
  55. Joy Global Inc. (JOYG)
  56. KLA Tencor Corporation (KLAC)
  57. Lam Research Corporation (LRCX)
  58. Liberty Media Corporation, Interactive Series A (LINTA)
  59. Life Technologies Corporation (LIFE)
  60. Linear Technology Corporation (LLTC)
  61. Logitech International, SA (LOGI)
  62. Marvell Technology Group, Ltd. (MRVL)
  63. Mattel, Inc. (MAT)
  64. Maxim Integrated Products (MXIM)
  65. Microchip Technology Incorporated (MCHP)
  66. Microsoft Corporation (MSFT)
  67. Millicom International Cellular S.A. (MICC)
  68. Mylan, Inc. (MYL)
  69. NetApp, Inc. (NTAP)
  70. News Corporation, Ltd. (NWSA)
  71. NII Holdings, Inc. (NIHD)
  72. NVIDIA Corporation (NVDA)
  73. O'Reilly Automotive, Inc. (ORLY)
  74. Oracle Corporation (ORCL)
  75. PACCAR Inc. (PCAR)
  76. Patterson Companies Inc. (PDCO)
  77. Paychex, Inc. (PAYX)
  78. Priceline.com, Incorporated (PCLN)
  79. Qiagen N.V. (QGEN)
  80. QUALCOMM Incorporated (QCOM)
  81. Research in Motion Limited (RIMM)
  82. Ross Stores Inc. (ROST)
  83. SanDisk Corporation (SNDK)
  84. Seagate Technology Holdings (STX)
  85. Sears Holdings Corporation (SHLD)
  86. Sigma-Aldrich Corporation (SIAL)
  87. Staples Inc. (SPLS)
  88. Starbucks Corporation (SBUX)
  89. Stericycle, Inc (SRCL)
  90. Symantec Corporation (SYMC)
  91. Teva Pharmaceutical Industries Ltd. (TEVA)
  92. Urban Outfitters, Inc. (URBN)
  93. VeriSign, Inc. (VRSN)
  94. Vertex Pharmaceuticals (VRTX)
  95. Virgin Media, Inc. (VMED)
  96. Vodafone Group, plc. (VOD)
  97. Warner Chilcott, Ltd. (WCRX)
  98. Wynn Resorts Ltd. (WYNN)
  99. Xilinx, Inc. (XLNX)
  100. Yahoo! Inc. (YHOO)

Changes in 2009

On January 20, News Corporation was added to the index, replacing Focus Media Holding.

On July 17, Cerner Corporation replaced Sun Microsystems in the index. Sun Microsystems is being acquired by Oracle, forcing the change.

On October 29, Priceline.com replaced Juniper Networks, after Juniper transferred to the NYSE.

On December 11, the NASDAQ announced the annual re-ranking of the index, resulting in 7 new stocks joining the index: Vodafone, Mattel, BMC Software, Mylan, Qiagen, SanDisk and Virgin Media.

These stocks replaced Akamai Technologies, Hansen Natural, IAC/InterActiveCorp, Liberty Global, Pharmaceutical Product Development, Ryanair and Steel Dynamics on December 21.

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