investment strategy: Beyond Sensex, Nifty? Sharpen your game on the Nasdaq 100

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Domestic investors often complain that they are unable to participate in the stellar journey of companies like Apple, Amazon, Alphabet, Intel, Tesla and Facebook, which have been the main disruptors and game-changers in their respective segments. The popularity of the Big Four tech companies (Facebook, Apple, Netflix and Google) seems so closely related that they are treated as a separate asset class. Above all, they have been forward-thinking companies and have continued to invest in next-generation technologies that constitute a solid building for long-term revenue visibility. No wonder the extra market value generated by these disruptors has pulled the US market up with boundless energy.

With the presence of software to computers, communications to entertainment, advertising to e-commerce, these platforms are called the new “diversified manufacturers” of the 21st century.

So how can an Indian investor participate?
Investors can allocate 10-15% of their total equity to a mutual fund portfolio that invests in global stocks. Such an allocation increases portfolio diversification while adding the benefits of a favorable US dollar-rupee rate. It should be noted that each stock market behaves differently each year.

In order to capture the benefits of global asset diversification, several asset management companies have launched global funds that are specific to a region, sector or country. Gaining exposure to international equities through an international fund provides the investor with a hassle-free investment experience as well as professional expertise and tax efficiency, as investors do not have to face a tax impact every time. the portfolio is rebalanced.

Understanding the Nasdaq-100 index

The Nasdaq-100 is home to some of the well-known names in technology like Apple, Microsoft, Alphabet, Intel Facebook, etc. The index includes category defining companies at the forefront of innovation from other key industries such as Amgen, Starbucks and Tesla to name a few. Most of the index weighting is in global technology brands and is devoid of financial companies. Being a leader in disruption, research and development is a key factor in

economic growth for the constituents of the Nasdaq -100.

Nasdaq -100 companies spend on average about twice on R&D compared to the S&P 500. It is therefore not surprising that the value of patents filed by Nasdaq -100 companies has increased by 900% since May 2007, compared to 300.% among all other listed companies. In fact, Nasdaq-100 companies now account for 10.6% of the aggregate patent value in all publicly traded companies. Interestingly, 58 companies on the Nasdaq-100 (accounting for 84% of the index weighting) recently filed for patents in one or more categories of 35 key areas of disruptive technology such as artificial intelligence, energy. own or blockchain.

When it comes to performance, back-tested data shows that a portfolio of the bottom 50 of the Nasdaq -100 equally weighted has outperformed the top 50 of the S&P 500 since 2001. Electronic vehicle company Tesla brand has first entered the Nasdaq -100 index and it was only after 7.5 years that it became part of the S&P 500 index. The early inclusion of tech giants led to an increase in the Nasdaq -100 to S&P 500 market capitalization ratio of 16% in 2006 to 45% in 2020. A growing share of technology companies in the -100 Nasdaq has resulted in major outperformance when relative to other US and Indian stock indexes .

As for the return profile, over the past decade the Nasdaq -100 has generated an IRR (Total Return Index) return of 31.2% CAGR, while the S & P500 and Nifty 50 have posted an IRR. 23.3% and 13.6% over the same period. In 2020, 12 Nasdaq-100 companies posted annual returns of at least 100% and posted average revenue growth of 35%.

How to invest in the Nasdaq -100 index?

The Nasdaq -100 offers broad exposure to the US market, which contributes 59% of the global market capitalization. For an Indian investor, there are a few offers based on this index, which is made available by national fund companies. Recently, ICICI Prudential Mutual Fund launched an index fund based on the Nasdaq-100 index. This offering aims to generate returns in line with the index minus tracking error and expense.

So if you are an investor looking for exposure to global equity markets, potential hedge against the depreciation of the rupee against the dollar and your risk appetite is in line with that of the fund, then invest in an offer based on the Nasdaq -100 index can be considered an attractive investment. option.

(Harshvardhan Roongta, CFP, is CEO of Roongta Securities. His views are his own)


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