If you want a look behind the curtain to find the most innovative companies in the marketplace, one measure is CNBC’s IQ 100 Index,  a first-of-its-kind rules-based index of large-cap companies that derive substantial revenue growth through the use of protected, proprietary technology.

It was revealed Tuesday that effective January 1 the index was rebalanced, and 10 new companies made the cut, including Target and Nabors Industries.

In the past year, the index has significantly outperformed the S&P 500: It is up 35.73 percent versus 21.46 percent for the S&P 500.

The companies in the index are weighted according to each one’s ability to invest in, develop, control and deploy intellectual property to achieve strategic advantage over competitors. Companies with the highest weighting maintain this type of advantage across multiple industries. It is powered by MCAM-International, a firm that maintains an unprecedented archive of documents related to patents, trademarks, copyrights and other intangible assets from 160 countries.

According to David Martin, M-Cam founder and chairman, Target has become a leader in cybersecurity after suffering losses from its hacking debacle in 2013. It is now “best-of-breed in cyberdefense” from the point-of-sale throughout the retail value chain.

Nabors’ technology in “smart hole” horizontal drilling made it a standout in the energy fracking sector, Martin explained. “It is enabling exploration for resources in places never before possible.”

The No. 1 company on the index is Microsoft, for its leadership in developing software for the cloud,  but surprisingly other tech darlings are absent, including Google and Snap. As Martin notes, “Snap has a beautiful interactive platform for consumers, but it does not have core technology.”

Innovation is a key component driving the value of companies, but it’s been toughing quantifying which companies are innovative and which are not.

Last year we introduced the CNBC IQ 100, an index of 100 companies chosen from the Russell 1000, specifically for innovation, by M-CAM. The most innovative companies control market rights to original ideas and exclusive intellectual property through vehicles like patents, trademarks and copyrights, but it can also mean trade-secret rights or even more hard-to-measure concepts, like water rights or pollution rights.

The index has been updated to add 10 new companies: Boeing, Micron Technology, Eastman Chemical, NCR, Harris, Nabors Industries, Target, Citigroup, General Mills and Garmin.

One surprise add was Target. When I talked to M-CAM CEO David Martin back in October of last year, he noted that Target did not have any of their own internally developed supply chain. They have to get vendor input, and so their destiny is being dictated to them by outside partners. Not innovative!

What’s changed? Cybersecurity — they had one of the biggest hacks in corporate history, and they took control of their own cybersecurity.

“They’ve revamped their point of sale technologies, improving the way devices are handled at the cash register, and done enormous amount of client verification so they know you are the one making the purchases,” Martin said. “They’ve also adopted technologies used in other industries and made them relevant for the consumer space.”

Or take Nabors Industries, one of the leaders in advancing fracking technology. Martin notes that much of the technology for horizontal and lateral drilling were developed in other areas, like remote robotic surgery, another example of companies using innovation from other technologies: “They’ve taken drilling out of the realm of surgery and moved it into geology.”

The most innovative company on the list: Microsoft. Martin says it’s simple.They have figured out ways to make the cloud more usable. Their operating systems are used to gain access to the storage systems in the cloud. What good is having all this data if no one can access it properly or you don’t know what to do with it?

Microsoft will help organize what you can access, what you should be interested in, what you might be interested in. Suppose you are a health care provider and all your healthcare records are in the cloud. What does that mean? You to make sure that the information is accessible, but you get real value added when you have software that shows how a specific piece of healthcare information integrates with all the other healthcare information. Microsoft has software that can provide insights into the data that a human could not have.

Why the emphasis on innovation? Because intellectual capital and intangible assets are critical to a company’s growth prospects, yet it turns out to be very difficult to reliably report on the value of innovation.

The database is compiled using a rules-based methodology. Leaders are derived using a mix of algorithms developed by MCAM that search all public filing for relevant criteria. The stuff that matters — the intellectual property and other intangible assets — are compared to the equivalent rights held by other firms; then the economic consequence of these assets on the underlying business is characterized.

This elusive quality — innovation — may also be a secret sauce that helps power outperformance. Since last March, the CNBC IQ 100 is up 36 percent versus a gain of 22 percent for the S&P 500.

It’s also fun to look at the companies that are left out of the list: a lot of tech companies you think might be innovators aren’t.

Or at least that’s the way Martin sees it. Take Alphabet, formerly Google: not on the list. “Google is an advertising agency wrapped in the seduction of a search engine,” Martin told me back in October. “Their marginal revenue comes entirely from ads, not from technology. Their business is advertising; they are not a tech company.”

He hasn’t changed his mind: they’re still off the list. “It’s been getting worse, not better.”

Facebook doesn’t make the cut either. By its own admission, Facebook is best categorized as an advertising company, according to Martin. And the architecture and infrastructure that powers most of Facebook is built on systems owned by or licensed from other companies. “As soon as Facebook derives substantial revenue from IP that it owns — Oculus, for instance — it will be considered for inclusion in the index,” Martin told me.

What about Snapchat? That wouldn’t make it, either: “It’s got a beautiful platform — graphics overlay, interactive stuff but what that is is stickiness for the consumer, but it’s not core technology,” he said.

You can see the full list here: cnbc.com/iq100.

Today CNBC unveils the CNBC IQ100 Index, a first-of-its-kind rules-based index of large-cap companies that  derive substantial revenue growth through the use of protected, proprietary technology. It is powered by MCAM-International, a firm that maintains an unprecedented archive of documents related to patents, trademarks, copyrights and other intangible assets from 160 countries. A mix of MCAM’s proprietary algorithms comb the documents for relevant criteria and select the 100 index components. According to guidelines set by CNBC’s editorial team, at least 90 percent of index components must be selected from the Russell 1000 universe, while up to 10 percent may come from a mix of high-scoring international companies that trade in the United States as American Depository Receipts (ADRs), small-cap and mid-cap companies.

The companies in the index are weighted according to each one’s ability to invest in, develop, control and deploy intellectual property to achieve strategic advantage over competitors. Companies with the highest weighting maintain this type of advantage across multiple industries.

Johnson & Johnson is the highest-weighted stock in the index this quarter, followed by AMD and Amazon.

While J&J may not be the first company anyone thinks of when they hear the word “innovation,” the 130-year-old company is on the leading edge of everything — from baby shampoo to biosurgery. It has a history of continuously developing new products and reinventing existing  ones to grow its margins.

J&J spent more than $9.2 billion on R&D in 2015, or more than 13 percent of total revenues. (Compare that to Apple, which spent about $8 billion, or just 8 percent of total revenues on R&D.) According to J&J’s annual report, new products introduced in the last five years accounted for approximately 25 percent of 2015 revenue. And it attributed operational growth to new product launches in five different units of the company: baby care, oral care, surgery, vision care and women’s health.

The CNBC IQ100 helps prove that executives who invest time, money and human capital toward improving core competencies can deliver more value to customers, employees and shareholders. Despite surging stock buybacks and intense quarterly earnings pressure in today’s business landscape, companies that focus on material innovations protected with proprietary rights win over the long term.

The real proof is in the performance: In an analysis done by MCAM, the CNBC IQ100 outperformed the S&P 500 by an average of 5 percent going back to 2007.

The IQ100 is entirely rules-based. There is no committee, and therefore no human bias. The index will be reweighted quarterly and reconfigured once per year. Unlike the Dow Jones Industrial Average and the S&P 500, stock price and market capitalization are not factors in determining index weighting.

Today the 120-year-old Dow Jones Industrial Average stock index, composed of 30 large-cap stocks, is used by many economists to gauge the performance of the U.S. economy. However, most market watchers know the Dow is statistically flawed and suffers from outdated methodology and fails to fully account for how innovation drives U.S. economic growth.

Take the case of Apple, which wasn’t added to the Dow until March 2015. It was the world’s richest company long before then, but it couldn’t be added to the Dow, because the stock price was too high and could therefore skew the index. It took a 7-to-1 stock split of its own — and a coincidental stock split by Visa, another Dow component — to allow the committee that manages the Dow and other indexes to consider adding Apple.

Technology and America’s transition from a manufacturing-based to a services-based society has made the economy more complex and corporate growth harder to measure. Companies know how to value tangible assets like inventory and equipment, but there is no standard method for valuing intangibles like software patents and brand equity. The real drivers of margin growth, and in turn the sources of economic and employment growth, are hidden. The IQ100 is designed to find them and determine which companies benefit the most from the new market opportunities they identify, pursue, control and protect.

Much more about the CNBC IQ100 can be found in the  white paper written by MCAM, which lays out the methodology in detail and outlines the results of the back-tested performance.

Correction: A previous version of this story characterized the universe of stocks from which the CNBC IQ 100 are selected as exclusive to the Russell 1000. Complete details regarding the selection process can be found here.