For years, the NASDAQ 100 has been the dominant benchmark for growth investors in the U.S. markets, known for its heavy exposure to technology and innovation-driven companies. The methodology is straightforward—the 100 largest non-financial companies by market capitalization listed on the NASDAQ exchange are selected for inclusion, with constituents weighted by modified market capitalization.

However, this simplicity can come with trade-offs. Since the NASDAQ 100 does not apply fundamental selection criteria, mature, slow-growth companies can enter the index purely due to their size, potentially diluting the growth exposure that investors seek.

In contrast, the WisdomTree U.S. Quality Growth Index deploys a fundamentals-based selection process, identifying high-growth companies with strong profitability metrics across all major U.S. exchanges. This broader and more refined methodology has led to outperformance of more than 15% over the NASDAQ 100 since its launch in November 2022, a period when the NASDAQ 100 itself posted strong gains.

Figure 1: Live Performance vs. NASDAQ 100, Russell 1000 Growth and S&P 500

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Stock Selection: A Key Differentiator

Figure 2: Stocks Overlap between WisdomTree U.S. Quality Growth Index and NASDAQ 100

While there is significant overlap in holdings, WisdomTree's selection methodology results in a differentiated portfolio, emphasizing earnings and sales growth as key factors.

Unique Stock Selections: WisdomTree vs. NASDAQ 100

To highlight the contrast in methodology, below are the five largest unique holdings in each index:

Top Unique Stocks in WisdomTree U.S. Quality Growth:

• Eli Lilly & Co
• Visa
• Mastercard
• Blackstone
• ServiceNow

Top Unique Stocks in NASDAQ 100 (excluded from WisdomTree due to profitability and growth screens):

• Costco Wholesale
• T-Mobile US
• Cisco Systems
• PepsiCo
• Linde

Figure 3: Top Unique Stocks in WisdomTree U.S. Quality Growth Index versus Unique Stocks in NASDAQ 100 Index

A few observations from above:

• As of December 31, 2024, the average estimated earnings growth and sales growth for companies included in the WisdomTree Index but excluded from the NASDAQ 100 were 24.5% and 14.5%, respectively.
• Conversely, the average earnings and sales growth for companies included in the NASDAQ 100 but excluded from the WisdomTree Index were just 9.8% and 6.9%, respectively.
• One standout example is ServiceNow (NOW)—a $200+ billion market capitalization company that has grown sales at an annualized rate of 26.5% over the last five years. Analysts project it will grow earnings at over 20.4% annually in the coming years.
• On the other hand, Cisco Systems (CSCO), which is included in the NASDAQ 100 but excluded from the WisdomTree Index, has grown sales at just 0.4% annualized and is expected to deliver less than 7% earnings growth going forward. Despite its relatively slow growth, Cisco remains in the NASDAQ 100 simply due to its market cap and NASDAQ listing—not because it meets high-growth criteria.

Figure 4: Performance Attribution: Intentional Approach to Growth Matters

Sources: WisdomTree, FactSet, Bloomberg. Returns from 12/15/22 to 12/31/24 (earliest common history) are derived from the total return series. Historical performance is not an indication of future performance, and any investment may go down in value.

Looking at the performance attribution numbers of the WisdomTree U.S. Quality Growth Fund (QGRW), which tracks the WTQGRW Index, relative to the Invesco QQQ Trust (QQQ), which tracks the Nasdaq 100 Index, we can see the breakdown of the outperformance since December 2022. In this two-year period, QGRW has outperformed QQQ by 5.6% on an annualized basis. The outperformance can be partly attributed to the over-weight allocation to Financials, including companies like Visa, Mastercard and Blackstone; and the under-weight allocation to Consumer Staples, avoiding names like PepsiCo and Costco. The other driver of outperformance is stock selection within the Information Technology sector, which is seen with the addition of AppLovin Corp during the December 2023 rebalance, the avoidance of laggards like Intel and the weighting of certain Magnificent Seven names.

Conclusion: A More Holistic Approach to Growth Investing

By applying a fundamentals-based selection process across all U.S. exchanges, the WisdomTree U.S. Quality Growth Fund seeks to provide a better proxy for growth investing than traditional market cap weighted indexes like the NASDAQ 100.

QGRW seeks to:

• Capture high-growth companies from the U.S. stock market, agnostic of the exchange
• Filter out slower-growing companies that might make it into the NASDAQ 100 due to market-cap selection
• Reduce speculative exposure by adding profitability as a selection metric

As investors continue to seek high-quality growth opportunities, a fundamentals-driven approach like WisdomTree's may offer a superior way to access long-term, sustainable growth.