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He Nasdaq 100It's full of the biggest and best US tech stocks. While most investors follow the S&P 500This growth rate has actually performed much stronger over the past five years. And luckily for UK investors, there are plenty of London-listed index trackers to choose from. In other words, British investors can easily capitalize on the returns of American tech giants.
The performance of the Nasdaq has been exemplary. But it's important to note that the run has also been quite volatile, especially compared to indices like the FTSE 100 and even FTSE 250. However, investors who held out during the storm saw quite substantial returns.
So how much could they have earned if they had invested £5,000 in a low-cost index tracker in December 2019?
The return of the Nasdaq in five years
At the beginning of December 2019, the Nasdaq 100 was around 8,400 points. However, housing some of the most volatile and expensive tech stocks, it quickly plummeted to below 7,000 within a few months once the pandemic took hold.
While tech stocks recovered quickly, rising interest rates and inflation caused them to fall again during the 2022 stock market correction. In fact, the Nasdaq 100 suffered another 30% drop during this period. As stated above, it is a volatile index.
However, even with all this volatility, the index now sits just below 21,000 points. That means investors have made an impressive 150% return over the past five years. This gain increases to 160% when dividends are included.
By comparison, the S&P 500 has returned just 110% over the same period. That means investors who put £5,000 into the Nasdaq 100 five years ago now have £13,000 versus the £10,500 given up for the S&P 500.
What is driving returns?
The Nasdaq is a market capitalization-weighted index. That means the largest companies have the most influence on their performance. And right now the five largest stocks are responsible for almost 35% of the index's returns. The greatest among them is Apple (NASDAQ:AAPL).
The consumer technology giant needs no introduction. On its own, the company has vastly outperformed its parent index, generating a gain of 252% even before taking dividends into account.
With inflation cooling, analysts project a rise in consumer electronics spending next year with calls for a new wave of spending on mobile device upgrades. In short, the next company iPhone could be ready to disappear from shelves, especially with its enhanced capabilities powered by artificial intelligence (ai). And when combined with its thriving services segment, including digital payments, this growth could be just the tip of the iceberg in the long term.
However, the company is not without its flaws. With a heavy dependence on the Chinese market, American companies must remain favorable to 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 company driving Nasdaq 100 returns. And there are many others trading at high multiples with the expectation of future growth. As such, the index's volatility reputation is not likely to change any time soon.
