The Nasdaq 100‘s filled with America’s biggest and best technology stocks. While most investors track the S&P 500, this growth index has actually been a much stronger performer over the last five years. And luckily for UK investors, there are plenty of London-listed index trackers to pick from. In other words, British investors can easily capitalise on the returns of US tech giants.
The Nasdaq’s performance has been exemplary. But it’s important to note that the journey has also been pretty volatile, especially by comparison to indices like the FTSE 100 and even FTSE 250. Nevertheless, investors who held on through the storm have made quite a substantial return.
So how much could they have made if they’d invested £5,000 in a low-cost index tracker back in December 2019?
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Nasdaq’s five-year return
At the start of December 2019, the Nasdaq 100 sat at around 8,400 points. However, being home to some of the most volatile and pricy tech stocks, this quickly crashed to under 7,000 within a few months once the pandemic took over the world.
While tech stocks quickly recovered, rising interest rates and inflation sent them all tumbling again during the 2022 stock market correction. In fact, the Nasdaq 100 suffered another 30% drop throughout this period. As previously stated, it’s a volatile index.
However, even with all this volatility, the index now stands at just shy of 21,000 points. That means investors have earned an impressive 150% return over the last five years. This gain increases to 160% when dividends are included.
By comparison, the S&P 500 has delivered just shy of 110% over the same period. That means investors who put £5,000 in the Nasdaq 100 five years ago are now sitting on £13,000 versus the £10,500 delivered by the S&P 500.
What’s driving the returns?
The Nasdaq is a market-cap-weighted index. That means the largest companies have the biggest influence on its performance. And right now the largest five stocks are responsible for almost 35% of the index’s returns. The largest among them is Apple (NASDAQ:AAPL).
The consumer tech giant needs no introduction. By itself, the business has vastly outperformed its parent index, generating a 252% gain even before factoring in dividends.
With inflation cooling, analysts are projecting a surge in consumer electronic spending next year with calls for a new wave of mobile device upgrade spending. Put simply, the company’s next iPhone could be set to fly off the shelves, especially with its improved artificial intelligence (AI)-powered capabilities. And when paired with its thriving services segment, including digital payments, this growth could be just the tip of the iceberg in the long run.
However, the firm isn’t without its flaws. With a strong dependence on the Chinese market, the US business needs to remain favourable with the Chinese government. And that could prove more difficult under a Trump presidency whose anti-China stance isn’t exactly a secret.
Apple isn’t the only enterprise driving the returns of the Nasdaq 100. And there are plenty of others trading at lofty multiples on the expectation of future growth. As such, the index’s reputation for volatility isn’t likely to change any time soon.
