Learn more about what the Nasdaq Global Select Market Composite Index is, how it works, and how investors use it.
Definition and Example of Nasdaq Global Select Market Composite Index
The Nasdaq Global Select Market Composite is a stock market index that follows Nasdaq stocks listed on Nasdaq Stock Market’s Global Select tier, weighted by their market cap. The Global Select tier is Nasdaq’s top tier, and its stock must meet stricter liquidity and financial requirements. A stock market index is a compilation of stocks that allow investors to track the performance of the stocks as a group, just as they would track an individual stock. The Nasdaq Global Select Market Composite includes the history of the Nasdaq National Market Composite Index, which emerged on July 10, 1984, starting with a base of 100.00. The Nasdaq Global Select Market Composite represents more than 1,600 stocks as of early 2022, although the number of components often changes. Because the index includes so many stocks, funds that track it can offer investors diversity, which helps lower risk by spreading risk among many stocks. So if one stock fails, the other investments can make up for the losses.
How the Nasdaq Global Select Market Works
The Nasdaq is a major stocks and securities exchange that includes many growth stocks in the technology sector. It’s one of the largest stock exchanges in the world. The Nasdaq Global Select Market houses the highest initial listing standards for U.S. and global securities exchanges. Because the Nasdaq Global Select Market has such high initial listing standards, many companies view being listed on this market as a major achievement and sign of status. The companies listed on Nasdaq are diverse. These companies can represent many different areas of business, such as:
TechnologyRetailCommunicationsFinancial servicesTransportationMediaBiotechnology
The companies can choose list on one of three Nasdaq markets:
Nasdaq Global Select MarketNasdaq Global Market (formerly the Nasdaq National Market)Nasdaq Capital Market (formerly the Nasdaq SmallCap Market)
Each of these three markets have their own unique listing requirements for companies to list. These markets also have their own standards for entry fees, annual fees, and fees charged to list a new class of securities. To qualify for any of these markets, including the Nasdaq Global Select Market, all companies have to meet Nasdaq’s liquidity, financial, and corporate government requirements. To specifically qualify for the Nasdaq Global Select Market, the company applying needs to meet stricter financial and liquidity requirements than they would for the Nasdaq Global Market or Nasdaq Capital Market. Even if a company’s securities meet all the criteria for inclusion in the market tier, Nasdaq can deny the initial listing or apply additional conditions in an effort to protect both public interest and investors.
Pros and Cons of the Nasdaq Global Select Market Composite Index
For companies and investors that want to list on the Nasdaq Global Select Market, the index has some pros and cons to consider.
Pros Explained
Diversity for investors: The Nasdaq Global Select Market includes hundreds of companies. So investors that buy securities that track its index can offer the benefit of that diversity.Prestige for companies: The criteria for inclusion on Nasdaq Global Select Market is more strict than for inclusion on Nasdaq’s other two tiers.
Cons Explained
Index funds may not be suitable for all investing goals: Securities that track the Nasdaq Global Select Market Composite Index offer diversity because the index tracks an array of companies, but these securities may not be suited to all investors’ goals.Companies face tougher criteria: For a company, the tougher criteria for entry on the Nasdaq Global Select Market means it is more difficult to be included in that tier and as a result, its index.
What It Means for Individual Investors
For individual investors, the Nasdaq Global Select Market Composite Index can provide a number of advantages. First, the index can be used as a gauge to help investors compare how the companies in this index are fairing compared to the broader market or other indices. Investors can use that information to help make investing decisions that fit their investing strategies and goals. Investors in index funds tracking the Nasdaq Global Select Market Composite Index may also benefit from the fact that these companies are more heavily scrutinized for financial soundness than companies in other Nasdaq markets.
