Home to megacaps like Nvidia, Alphabet and Apple, the Nasdaq 100 index is celebrating its 40th anniversary this year, with a record worthy of the party. Its total return has outpaced that of the S&P 500 over the past five and 10 years. Tech stocks have outperformed every other sector, claiming a substantial share of the total market and performance.
Fund investors might wonder whether a tech-heavy index like the Nasdaq 100 is a better representation of the current economy. The answer? It depends on whom you ask.
Fund investors also should look to IBD's 2025 Best Mutual Funds award winners. In honor of IBD's 10th year publishing its list of the best-performing mutual funds, we interviewed top fund managers who beat their benchmark in the past 10 years to find out what makes their funds consistent moneymakers.
Since 2020, the Nasdaq 100 has surged 151% on a total return basis vs. the S&P 500's 97%. Over the 10-year period ending Dec. 31, 2024, it delivered an impressive 447% return vs. the S&P 500's 242%. Since its inception, the index surged approximately 20,000%, equating to an average yearly return of 14.25%.
The Nasdaq 100 (NDX) is a rules-based, or smart beta, index that tracks the top 100 nonfinancial companies listed on the Nasdaq. As of the end of 2024, their total market capitalization was $27 trillion. It was launched Jan. 1, 1985.
The index includes all of the Magnificent Seven stocks: Apple, Microsoft, Google parent Alphabet, Amazon.com, Nvidia, Meta Platforms and Tesla. Together, they make up nearly 50% of the index.
Read IBD's Full 2025 Special Report On The Best Mutual Funds For The Long Haul
Investors can choose from 26 mutual fund products, 94 ETFs, as well as stocks, options, futures and other financial instruments that track the index. Combined, these assets represent approximately $620 billion in daily trading volume, offering high liquidity for investors.
Pros And Cons: Superior Returns With More Volatility
The Nasdaq 100 has generated superior returns over the long term. But it can suffer bigger losses than the more diversified S&P 500 and is more volatile.
"What it's really come to embody over the years and what we're celebrating in the 40th anniversary, is the fact that it is today known as a large-cap growth index," said Emily Spurling, senior vice president and global head of indexes at Nasdaq. "We have companies within the Nasdaq 100 that really represent the future of the economy. So, we call it the benchmark of the 21st century, because it's those companies leading the charge and bringing us into the future."
Spurling also pointed out a common misconception about the index: Although technology is the dominant sector — accounting for over 60% — the Nasdaq 100 is not just a tech index.
"It reflects the top 100 nonfinancial companies listed on Nasdaq by market cap, and in terms of what those companies represent, they're key innovators in their space," she added.
Best Mutual Funds 2025: See The Benchmark-Beating Funds In Every Category
Nasdaq 100 Is More Than Just Tech Stocks
Beyond technology, the Nasdaq 100 index includes sectors such as consumer discretionary, health care, industrials, telecommunications, consumer staples, basic materials and utilities. This makes the index more diversified than investors realize, Spurling added. Also, because these stocks are listed on the Nasdaq vs. the NYSE, for example, they tend to be disruptors or innovators in their space.
The largest and most well-known ETF tracking the Nasdaq 100 is the $300 billion Invesco QQQ Trust (QQQ). Mutual funds include the $6.5 billion Victory Nasdaq-100 Index (USNQX), the $1.7 billion Shelton Nasdaq 100 Index Investor (NASDX) and the $108 million Invesco Nasdaq 100 Index (IVNQX). The index is also tracked in over 20 countries globally through various fund products.
While the index represents more than just technology, is it a good proxy for today's market?
Aniket Ullal, head of fund research at CFRA, argues that it has limitations compared to broader market indexes like the S&P 500. It's also very different from the Dow industrials, which is a price-weighted index of only 30 stocks.
Both the Nasdaq 100 and S&P 500 are market cap-weighted, meaning larger companies have more influence. This helps smooth out daily price fluctuations that can affect the Dow.
"The Dow emerged in the 1800s when fewer stocks were trading, and it was (originally designed) for newspaper publishing, it was not so much for professional investors," said Ullal. "Whereas the S&P 500 has more of a statistical underpinning in its construction."
Better Breadth Than The Dow, But No Financials
One key difference between these indexes is breadth, or how many stocks they hold. The Dow Jones has only 30 stocks, making it less reflective of the full stock market. The S&P 500 includes 500 companies, offering a broader representation. The Nasdaq 100 focuses only on the top 100, Nasdaq-listed, nonfinancial stocks.
Because the Dow focuses on just a few megacap stocks, it struggles to capture the full breadth of the stock market compared to the S&P 500, Ullal explained. Read more: How To Spot Stock Market Tops
Meanwhile, one of the limitations of the Nasdaq 100, he said, is that "it only holds stocks listed on the Nasdaq and it excludes financial stocks. So even the Nasdaq 100 is not an ideal representation of the overall stock market … and it's going to have a huge tech bias because obviously more tech companies tend to list on the Nasdaq."
The Dow holds about 19.5% of information technology stocks, while the S&P 500 has 34% in tech and the Nasdaq 100 about 58.2%.
"I would argue that the S&P 500 is the market," he said. "Neither the Dow Jones nor the Nasdaq 100 is actually measuring the market. Basically the Dow Jones index is underrepresenting technology, and Nasdaq 100 is overrepresenting technology."
How To Know It's Time To Sell Your Favorite Stock
Magnificent Seven Stocks All In One Place
Despite its tech-heavy bias, the Nasdaq 100 remains a compelling investment choice for certain investors. In fact, those seeking a concentrated exposure to the Magnificent Seven stocks in one product will find products that track the Nasdaq 100 attractive.
This is not the case with the S&P 500, for example, where these stocks are spread across 11 different sectors, making it more difficult for sector-based investors to combine them all under one roof.
"The beauty of the Nasdaq 100 is that it holds all the Magnificent Seven stocks in one place," said Ullal. "For investors who are looking for a concentrated trade focused on technology-driven businesses, it's a very good index."
