Market Breadth Primer: Nasdaq 100 Historical Constituents Change History

By Lawrence

Nasdaq-100 (NDX) is one of the most followed index worldwide. Many derivative products are created around the index itself to allow participations in its rise and fall all around the world. Unlike S&P 500, Nasdaq-100 does not require a company to be listed within United States only. This makes Nasdaq-100 a truly international index.

Due to the design of Nasdaq-100, its components are switched quite often, making it one of the indices requiring more maintenance afford than the others. In general, if you are tracking custom market breadth on NDX, keeping the index component list updated every month is good enough. If you cannot afford to do so, at least once every quarter will keep your breadth data relevant for analysis purpose.

Change of Business Model

Nasdaq used to offer its historical data for free at its main website. Since 2009, however, things started to change. We have seen the creation of a specialized website by Nasdaq that monetizes the data from Nasdaq. Many useful and time-sensitive information are now part of the paid services where you can get directly from the nasdaqomx.com website or from one of its redistributors. This makes it more difficult to obtain historical data on Nasdaq-100 for analysis.

Similar to the S&P 500 historical constituents, it is possible to reconstruct the snapshots of historical components of NDX manually if you are interested in doing so yourself. What you can do is track down the historical press releases of the component changes (which are a matter of public record) and then reverse engineer the information from the latest list of components. It is a tedious task and quite time-consuming.

For the latest component lists, it is easiest to get it from either the Powershare QQQ main page or the Nasdaq-100 home page. (Links in the resource area below)

Issues With Component Changes

I have already discussed about the various issues related to component changes in the S&P 500 article. I will not repeat that here. Feel free to check out the article using the link below in the resource section to learn about potential problems related to working with sets of historical components.

In a stable market environment, Nasdaq-100 seldom has many component changes. In fact, it can be months between changes happen. Many changes are caused by merger and acquisitions, not because of market cap ranking change. Nasdaq adopted the strategy to batch replace the components in the bottom of the top 100 market cap companies in December. Thus the last 2 weeks of past few years will cause your monthly updated component list off by 5 to 6 (or even more) issues.

The difference between your list and the actual components would be 5% or more after the change. Luckily, during that time of the year, market activities are slowest and the new components are just the bottom ones in the top 100, which you can tell from the next section, are not that important. Hence you can relax at the end of the year and do the switch after new year.

The Peculiar Behaviour Of Market Capitalization Weighted Index

Nasdaq-100 is particularly sensitive to changes of the top 30 components. The main reason is that the top 30 components already contribute to more than 70% of the total market cap of the index. Thus the fluctuations of these components play a much bigger role than the rest of the components combined.

This special behaviour is caused by the fact that Nasdaq-100 is a pure market cap weighted index. Unlike S&P 500 that enforce extra rules with diversification into multiple industries, Nasdaq-100 focuses on one and only one thing, the market cap. Hence stronger a component performs relative to the other components in the index, the higher its weighting will become. The opposite is also true, meaning that the weaker a stock performs relative to the other components, the lower its weighting (and importance) will become.

In another words, it is possible to construct custom market breadth data on Nasdaq-100 using just the top 30 components only. Custom market breadth created this way requires special attention because the size of the basket is so small that the basket of components has to be updated whenever there is a change of top 30 components by weighting. This can happen anytime and can happen every day during extreme market environment.

The custom market breadth data constructed from the top components are often leading in nature so it is a trade-off of effort and usefulness.

Snapshots of Historical Components

I have a set of Nasdaq-100 historical component lists going all the way back to 1990s.

I am making the quarterly and month snapshots of the Nasdaq-100 component list available in the Historical Data Bank.