Picture supply: Getty Photos
Shares on the US Nasdaq index make the headlines right here within the UK too. We will’t have missed Nvidia (NASDAQ: NVDA), with a market capitalisation of practically $3.4trn (sure, trillion). It’s price greater than all the businesses of the FTSE 100 mixed.
And Tesla at all times appears to be getting a point out. The Tesla share worth is up 31% for the reason that US election. Tesla continues to be effectively under Nvidia’s rise prior to now 5 years:
Flying tech shares
On Friday (22 November) the Nasdaq closed at 19,003 factors. On the identical date in 2019, it ended at 8,520 factors. That’s a acquire of 123%.
My imagined £5,000 invested in a low-cost Nasdaq index tracker fund again then could be price round £11,300 right now. There’d be some small expenses for the fund administration. However the Nasdaq pays a median dividend of round 1.8%, so I’ll deal with them as canceling out.
My key, and shocking, tackle that is how small that acquire is. I imply, that is the index that gives in a single day multibaggers, isn’t it?
Index comparability
Over the identical 5 years, the broader S&P 500 has risen by 92%, solely simply behind the Nasdaq. The dividend yield is analogous, at round 1.2%.
Primarily based on this, the S&P looks as if a greater index to trace than the Nasdaq, even when only for decrease threat. However that’s solely trying again 5 years.
Winding the clock again a decade, the S&P 500 has gained 189%, however the Nasdaq is up a whopping 303%. So earlier than I made a decision which to trace, I’d fastidiously look at a number of timescales and take into consideration my very own funding horizon.
My £5,000 invested in a Nasdaq tracker 10 years in the past might be price £21,500 now. And, the identical quantity invested when the tech index began in February 1971 may have grown to £948,600. Not that my pocket cash reached 5 grand again then, thoughts.
Focus
However that five-year return appears disappointing, nevertheless it jogs my memory of 1 essential lesson. The Nasdaq’s features are concentrated amongst just some key shares.
Proper now, it’s largely the so-called ‘Magnificent Seven’. That’s Nvidia and Tesla, together with Apple, Microsoft, Amazon.com, Alphabet, and Meta Platforms. All of them have manmade intelligence (AI) in frequent.
CNBC runs its personal Magnificent 7 index, and that’s up 320% simply because it began in December 2022.
Nasdaq chief
To get again to Nvidia, what we see there’s a five-year acquire of two,549%. And to get some thought of the place that development got here from, the corporate posted whole income again in 2020 of $10.9bn.
Then by the 12 months to January 2024, whole income had reached a whopping $60.9bn. Q3 income this 12 months, reported on 20 November, reached $35.1bn. That’s in a single quarter alone. Nonetheless, because it seems to be like development may gradual slightly, buyers weren’t glad, and the value dipped slightly.
As buyers, we have to be conscious that Nasdaq development is usually concentrated in a small variety of shares. The index may be very unstable too, and it’s probably not for many who don’t need threat.
Nonetheless, if I’d put a shilling in it in 1971…
