A dive into large cap growth

We are big believers in “knowing what you own” in any market environment, and amid the extreme market moves that we have seen over the past month, it seems even more prudent. In previous articles we have looked at some of the differences between the Nasdaq-100 Index (the underlying index for Invesco QQQ) and the S&P 500 Index, now we examine how the Nasdaq-100 Index differs from other well-known growth indices: The Russell 1000 Growth Index and the S&P 500 Growth Index.

To refresh, the Nasdaq-100 Index is comprised of the 100 largest companies (ex-financials) listed on the Nasdaq exchange. The index provides significant exposure to growth sectors, namely Information Technology, Communication Services and Consumer Discretionary, with these growth-oriented sectors comprising over 80% of the weight of Nasdaq 100’s underlying holdings. The companies within these sectors, and the index as a whole, are highly innovative, as exhibited by their commitment to substantial Research & Development spending which enables them to be at the forefront of emerging long-term themes such as 3D Graphics, Cloud Computing and Virtual Reality. Remember that the Invesco QQQ ETF tracks the Nasdaq-100 and provides an investment vehicle to gain exposure to Nasdaq-100 companies.

The Russell 1000 Growth Index is comprised of 532 members of the Russell 1000 Index (the largest 1000 companies in the Russell 3000 Index), while the S&P 500 Growth Index is comprised of 272 members of the S&P 500. In both cases, these companies exhibit high growth characteristics within their respective parent indices (Russell 1000 and S&P 500). This differs from the Nasdaq 100’s more concentrated approach to gaining exposure to growth-oriented and innovative companies.

Performance

The Nasdaq-100 Index as compared to the Russell 1000 Growth and S&P 500 has shown significant outperformance, with cumulative total return outperformance over the year-to-date, 1 year, 3-year, 5-year and 10-year timeframes.

YTD (12/31/2019- 03/27/2020)
Nasdaq-100: -12.90%
Russell 1000 Growth: -15.91%
S&P 500 Growth: -16.34%

1-year (03/27/2019 – 03/27/2020)
Nasdaq-100: +4.93%
Russell 1000 Growth: +0.13%
S&P 500 Growth: -3.57%

3-year (03/27/2017 – 03/27/2020)
Nasdaq-100: +45.85%
Russell 1000 Growth: +36.24%
S&P 500 Growth: +29.96%

5-year (03/27/2015 – 03/27/2020)
Nasdaq-100: +85.50%
Russell 1000 Growth: +60.67%
S&P 500 Growth: +53.94%

10-year (03/27/2010 – 03/27/2020)
Nasdaq-100: +335.53%
Russell 1000 Growth: +232.28%
S&P 500 Growth: +221.37%

Complete Invesco QQQ ETF performance information is available here.

Source: Bloomberg L.P. Performance data quoted represents past performance, which is not a guarantee of future results.

An investor cannot invest directly in an index. Index performance does not represent fund performance, which could be lower.

Holdings

Broadly, as we look at the underlying holdings, Nasdaq-100 holds significantly fewer names (103) relative to both Russell 1000 Growth and S&P 500, offering more targeted, large-cap growth exposure. As we know, Nasdaq 100’s largest sector weightings are Information Technology (46.92%), Communication Services (20.19%) and Consumer Discretionary (15.61%) and these represent the largest overweights relative to Russell 1000 Growth (Technology: 39.66%, Communication Services: 11.36%, Consumer Discretionary: 14.17%) and S&P 500 Growth (Technology: 38.39%, Communication Services: 12.59%, Consumer Discretionary: 13.89%). Over the long term (03/27/2010 – 03/27/2020) these three sectors represented the largest sources of relative outperformance vs. the Russell 1000 Growth and the S&P 500.

Performance over the short-term however (year-to-date), tells a different story. Against the Russell 1000 Growth, the Nasdaq 100’s underweights to Healthcare and Industrials have been the two largest drivers behind year-to-date relative outperformance (lack of exposure to Financials was the fourth largest driver), while against the S&P 500, the Nasdaq 100’s underweights to Industrials, Financials and Healthcare were the largest contributors to relative outperformance. Within the Healthcare sector, Nasdaq-100 was somewhat cushioned by its lack of large pharmaceuticals and health care providers, and its exposure to innovative biotech companies drove its healthcare sector to fall by only 8.28%, versus the Russell 1000 Growth’s Healthcare sector: -15.86% and the S&P 500 Growth’s Healthcare sector: -15.54%.

Summary

The Nasdaq-100 has outperformed the Russell 1000 Growth Index and S&P 500 Growth Index in both the short term and long term. Beyond outperformance, the concentrated basket of companies within the Nasdaq 100 have shown a firm commitment to innovation through research and development and are consistently at the forefront of transformative, long-term themes. Invesco offers a widely-traded ETF that tracks the Nasdaq-100.

Data included is as of March 30, 2020 and is sourced from Bloomberg L.P. unless otherwise noted.

The Nasdaq-100 Index includes 100 of the largest domestic and international non-financial securities listed on the NASDAQ Stock Market based on market capitalization.

The S&P 500® Index is an unmanaged index considered representative of the US stock market.

The Russell 1000® Growth Index, a trademark/service mark of the Frank Russell Co.®, is an unmanaged index considered representative of large-cap growth stocks.

The S&P 500 Growth Index is an index of stocks within the S&P 500 that exhibit growth characteristics.

The opinions expressed are those of the authors, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.