Market outlook

New faces. Same DNA.

November 24, 2020

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We’ve all heard the old proverb that necessity is the mother of invention. When it comes to the Nasdaq-100 and the Invesco QQQ ETF, however, a more contemporary spin on that adage might be that necessity is the mother of innovation.

What makes the Nasdaq-100^® such a bastion of innovation?

On average, an index like the Dow Jones Industrial Average (DJIA) changes just one component every two years. It’s part of a concerted effort to build component familiarity and maintain index continuity. Conversely, since the inception of the Nasdaq-100 in 1985, only four companies have continuously remained components. Why? Because the pace of innovation and change among the 30 bellwether industrials is a far cry from the pace of innovation and change found up and down the Nasdaq-100.

How new names are added

Each year in December, Nasdaq conducts its annual reconstitution of the Nasdaq-100 according to the index methodology (https://indexes.nasdaqomx.com/docs/Methodology_NDX.pdf). As part of this, Nasdaq reviews every one of the individual stocks that make up the index along with all the other Nasdaq stocks which are on the outside looking in (especially the stocks that comprise our newly launched QQQJ ETF, the 100 largest eligible Nasdaq-listed companies outside of the Nasdaq-100). All eligible companies are then re-ranked, and any necessary adjustments to the index are made.

While there’s no fixed number of prescribed changes to the index, typically about 8-12 companies (some first-timers and others returning) are added annually. Since this past December, 12 names have been added to the index, among them as follows:

December 2019	Last December saw the addition of six new companies to the index, including Splunk Technology — a cloud-based data-gathering and analysis platform provider focused on empowering IT, DevOps and security teams.
April 2020	April brought with it the inclusion of Zoom Video Communications, driven in large part by the seemingly overnight adoption of the platform as the go-to-choice for both business and social gathering during COVID-19 lockdowns and social distancing mandates.
June 2020	In June, DocuSign (the world’s leading eSignature solution facilitating the virtual execution of legal agreements such as contracts, financial documents and invoices) was added to the index.
July 2020	And this past July saw the inclusion of Moderna — a messenger RNA-based pharmaceutical discovery, drug development, and vaccine technologies biotech company, and one of several firms at the forefront of researching and developing COVID-19 vaccines and therapies.

Notice a common theme?

Adapting to a shifting landscape

What every one of these companies brought to the table—long before they ever earned their place in the index—was a unique vision and an innovative spirit. Suddenly, however, with the emergence of COVID-19, what were emerging technologies and solutions quickly became essential aspects of our new normal—making it possible for us to maintain productive lives, connections and work functions. But this current pandemic is by no means the reason for their inclusion; it has merely served as an accelerant. Rather, it’s the forward-looking, entrepreneurial imagination of these visionary businesses that has fueled their ascent.

Make no mistake, the Nasdaq-100 is not about chasing the next ‘hot stock.’ While components change from time to time—as new companies with new ideas come along—the index always represents innovation leaders for the current environment and the existing market conditions. You don’t have to pick and choose individual stocks. Thanks to Invesco QQQ ETF, you can invest in all the 100 companies.