Sunday, August 26, 2012

Historical Returns for the Nasdaq-100 (1986-2011)

The Nasdaq-100 Index includes 100 of the largest domestic and international non-financial securities listed on the Nasdaq Stock Market based on market capitalization. It is a modified capitalization-weighted index. The weightings of companies in the index are based on their market capitalizations, with rules capping the influence of the largest components. As of August 24, 2012, the largest component of the index is Apple (symbol: AAPL), which comprises about 19.64% of the index.

The Nasdaq-100 was initiated on January 31, 1985. The Nasdaq-100 grew into one of the most widely-followed technology indexes during the dot.com bubble. The chart below (click on the chart for a larger view) illustrates historical annual returns for the Nasdaq-100 index between the calendar years 1986 and 2011.*

As shown, the Nasdaq-100 rocketed higher during the 1990s, rising about 1849% between 1991 and 1999, an annualized gain of about 38.28%. Between 1986 and 1999, the Nasdaq-100 rose about 2702%, an annualized gain of about 26.88%. However, between 2000 and 2008 the Nasdaq-100 was one of the worst-performing U.S. stock indexes, dropping about 68.32%, an annualized loss of about 11.69%.

The Nasdaq-100 rocketed during the late-1990s as investors piled into technology stocks regardless of valuations. As of January 1999, the price/earnings (P/E) ratio of the Nasdaq-100 index was reportedly about 90.2 and topped well over 100 by the end of 1999 as the Nasdaq-100 rose over 101% during the year. After the dot-com bubble burst, the Nasdaq-100 plummeted about from a peak closing value of about 4704.72 on March 27, 2000 to its bear market low close of 804.64 on October 7, 2002, a drop of about 82.897%.

Many investors were burned when the dot.com bubble burst and have shunned technology stocks ever since. I personally fell into that camp myself until I reevaluated my position in 2009. Although the technology bear market that extended between March 2000 and October 2002 (or March 2009, the bottom of the financial crisis bear market) was painful, technology stocks now currently have lower valuations than non-technology stocks and are likely to outperform in the near future. For example, as of the market close on August 24, 2012, the Nasdaq-100 had a P/E ratio of about 11.89, which is probably about 10% of what it was at the time of the Nasdaq-100 index's peak on March 27, 2000. The S&P 500 index, on the other hand, currently has a much higher P/E ratio of about 16.25.

It would not surprise me to see technology stocks go on a multi-year run as investors reconsider the potential of high tech companies. 



*This chart does not account for reinvested dividends as I have not been able to locate a reliable source for total dividend-adjusted returns for the Nasdaq-100.
** I have posted updated returns for the Nasdaq-100 through 2014 in another post.

Saturday, August 25, 2012

Historical Returns for the MSCI Emerging Markets Index (1988-2011)

The Morgan Stanley Capital International (MSCI) Emerging Markets (EM) Index is the preeminent emerging markets equity index. I have previously discussed annual returns of the index during the 1989-2008, 1989-2009, and 1988-2010 time periods.

The chart below lists annual returns for the MSCI EM Index in terms of U.S. Dollars between 1988 and 2011. The returns shown below represent net dividend reinvested returns.*

As illustrated below, the MSCI EM Index is extremely volatile. During the 24 years for which I have data (i.e., 1988-2011), the MSCI EM Index lost value during 10 calendar years and gained value in 14 other calendar years. The worst returns came during 2008 when the Index plummeted 53.33% during the financial crisis and the best annual gains came during 2009 when the Index soared 78.51%. The best extended stretch of strong returns occurred between 2003 and 2007 during which the index gained an impressive 382.96%, an annualized gain of approximately 37.02%.

The annualized returns were 2.40% for the 5-year period, 13.86% for the 10-year period, and 6.87% for the 15-year period ending in 2011. Annualized returns between 1988 and 2011 were about 12.33% and the Index had a total new return of 1,529% between 1988 and 2011. The performance of the MSCI EM Index between 1988 and 2011 greatly exceeds the 9.45% annualized return and 773.66% total return of the S&P 500 Index during the same time period.

Emerging Markets should be critical portion of an investment portfolio of any stock market investor with a long-term investment strategy. The economies of Emerging Markets typically grow much faster than those of Developed Markets, such as the United States and the performance of equity markets of such countries often has a strong correlation with the overall economic growth of such countries. Also, as I have discussed previously, the U.S. Dollar will likely continue to weaken in the future as the country becomes more and more dependent upon foreign investment.

Investment advisers typically recommend limiting Emerging Markets to no more than 10-15% of an aggressive investor's portfolio.


* The performance data shown is slightly different than the performance data I saw for the MSCI EM Index at Index Universe, and I am not sure of the reason for the discrepancy.

 **I have updated this chart to include returns for 2012 in another post.