Who are the real movers & shakers of Nasdaq’s stellar run this past year

Recovering from the bottom of the Covid crisis in March 2020, all major global equity markets bounced back and posted impressive performance over the next one year ending March 2021.

In line with the overall US market, and broadbased global benchmarks, Nasdaq100 Index ended the financial year 2020-21 with total positive returns of 68.9% (as of close of March 31, 2021; all performance numbers in US dollar). But when you break down this performance, it throws up some interesting insights about the real movers and shakers of one of the world’s most popular equity indices.

By Constituents

Among the 115 securities (which include few index inclusion/exclusions during the past one year), 104 gained with (simple) average total returns of 69.2%; while 11 constituents logged negative average total returns of 10.8%.

When it comes to index movers, not just constituents’ total returns are important; their weightage on the index/portfolio is equally important. As seen in Exhibit 2 below, the total weightage of the top 10 stocks by size is around 52% and these 10 moved up the index by 42% out of 68.9% overall index returns during the 12 months ended as of Mar 31, 2021.

By Sectors

Historically, the NASDAQ 100 Index has had a high weightage of the technology sector. Sectors like energy, materials and real estate don’t have any constituent on the index. Utilities and financials* have negligible presence with total weightage of 0.75% and 0.02%, respectively (all sectors with less than 2% weightage are clubbed under ‘Others’).

As seen in Exhibit 3, out of 68.9% index total returns, the technology sector alone contributed 34.3% (nearly half of overall index performance), followed by communication services at 12.9% and consumer discretionary at 16.4%.

What is meant by contribution to index returns? It helps understand the respective stock/sector’s participation in the overall index movement. It is not the same as individual stock/sectoral performance. The contributions of stocks/sectors are generally influenced by two factors, its weightage on the index and individual stock performance.

By FAANG Stocks

These days, speaking of US market performance may not be complete without discussing FAANG stocks (Facebook, Apple, Amazon, Netflix and Google (Alphabet)). As noted in Exhibit 1 (a), FAANG do not fall among the top performing stocks in terms of individual performance. In fact their performance (average total returns of 70%) was very close to the index performance of 68.9% during March 2020 – 2021.

From Exhibit 4, it can be seen that total returns of each of FAANG stock (‘orange’ dots) lay very close to the index total returns line.

But when it comes to index movers, FAANG stocks due to their high weightage in the index (total weight of 35.4%), together contributed 26.1% to the index total returns.

(Mahavir Kaswa is Vice-President for Research (Passive Funds) at Motilal Oswal Asset Management. Views are his own)