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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 almost $3.4trn (sure, trillion). It’s value 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 remains to be nicely beneath Nvidia’s rise previously 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 can be value round £11,300 as we speak. There’d be some small prices for the fund administration. However the Nasdaq pays a mean dividend of round 1.8%, so I’ll deal with them as canceling out.
My key, and stunning, 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 comparable, at round 1.2%.
Based mostly on this, the S&P looks like a greater index to trace than the Nasdaq, even when only for decrease danger. 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 value £21,500 now. And, the identical quantity invested when the tech index began in February 1971 might 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 foremost lesson. The Nasdaq’s beneficial properties are concentrated amongst just some key shares.
Proper now, it’s principally 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 widespread.
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 complete income again in 2020 of $10.9bn.
Then by the 12 months to January 2024, complete 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 would possibly gradual a bit of, traders weren’t happy, and the value dipped a bit of.
As traders, we have to be conscious that Nasdaq development is commonly concentrated in a small variety of shares. The index will be very risky too, and it’s not likely for many who don’t need danger.
Nonetheless, if I’d put a shilling in it in 1971…
