Looking beyond Sensex, Nifty? Hone your game on Nasdaq 100

Looking beyond Sensex, Nifty? Hone your game on Nasdaq 100

One should construct a portfolio that is aligned to such investment strategies. Domestic investors often complain that they are not able to participate in the stellar journey of companies like Apple, Amazon, Alphabet, Intel, Tesla, and Facebook, which have been the major disruptors and game-changers in their respective segments. The popularity of the four big technology companies (Facebook, Apple, Netflix and Google) seems to be so entwined that they are treated as a distinct asset class. Above all, they have been forward-thinking companies and have continued to invest in new generation technology that lays down solid edifice for revenue visibility over the long-term. No wonder, the incremental market value generated from these disruptors pulled the US market up with boundless energy.

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

So, how can an Indian investor participate?
Investors can allocate 10-15% of their total equity into a mutual fund portfolio that invests in global equities. Such an allocation increases portfolio diversification while adding the benefits of a favourable US Dollar-Rupee rate. It must be noted that every equity market behaves differently each year.

In order to capture the benefits for global asset diversification, several Asset Management companies have launched global funds which are region, sector or country-specific in nature. Taking exposure to international equities via an international fund provides an investor a hassle-free investing experience along with professional expertise and tax efficiency, as investors do not have to face a tax impact each time the portfolio is rebalanced.

Understanding the Nasdaq-100 Index
Nasdaq-100 is home to some of the well-known names in technology such as Apple, Microsoft, Alphabet, Intel Facebook etc. The index includes category-defining companies on the forefront of innovation of other key industries such as Amgen, Starbucks, and Tesla to name a few. The bulk of the index weight is with global technology brands and is devoid of financial companies. Being a leader in disruption, research and development is a key driver of
economic growth for the constituents of Nasdaq -100.

The companies in Nasdaq -100, on average, spend about twice on R&D as compared to S&P 500. So, it is of no wonder that the value of patents filed by Nasdaq -100 companies rose by 900% since May 2007, compared with 300% across all other publicly listed companies. In fact, Nasdaq-100 companies now represent 10.6% of global aggregate patent value across all publicly listed companies. Interestingly, 58 companies in the Nasdaq-100 (representing 84% of index weight) recently filed patents across one or more categories of 35 key areas of Disruptive Technology such as Artificial Intelligence, Clean Energy, or Blockchain.

When it comes to performance, back-tested data shows that an equally weighted bottom 50 portfolio of Nasdaq -100 has outperformed the top 50 of the S&P 500 index since 2001. Marque electronic vehicle company Tesla became a part of the Nasdaq -100 index first and only after 7.5 years did it become a part of the S&P 500 index. The early inclusion of technology behemoths resulted in the rise of the market cap ratio of Nasdaq -100 to S& P 500 from 16% in 2006 to 45% in 2020. A rising share of tech companies in Nasdaq -100 has resulted in major outperformance when compared to other US and Indian equity indices.

When it comes to the return profile, over the last decade, Nasdaq -100 delivered a TRI (total return index) return of 31.2% CAGR, while the S&P500 and Nifty 50 posted a TRI of 23.3% and 13.6% in the same period. In 2020, 12 companies in the Nasdaq-100 registered full-year price returns of at least 100% and posted an average of 35% revenue growth.

How to invest in the Nasdaq -100 index?
Nasdaq -100 provides a large exposure to the US market—which contributes 59% of the global market capitalisation. For an Indian investor, there are a couple of offerings based on this index, which is made available by domestic fund houses. 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 expenses.

So, if you are an investor seeking global equity market exposure, a potential hedge against rupee depreciation vs Dollar and your risk appetite is in line with the fund, then investing in a Nasdaq -100 index-based offering can be considered as an interesting investment option.

(Harshvardhan Roongta, CFP, is CEO of Roongta […]

source Looking beyond Sensex, Nifty? Hone your game on Nasdaq 100

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