Here's another take on the re-balance:
quote.bloomberg.com
12/13 00:01
Nasdaq-100 New Members Will Lower Tech Presence: Taking Stock
By Josh P. Hamilton
New York, Dec. 13 (Bloomberg) -- The Nasdaq Stock Market probably will drop more than a dozen companies from its Nasdaq-100 Index, cutting the importance of computer-related shares in the benchmark for the most actively traded U.S. equity security, analysts say.
``Over the years, it's become less of a proxy'' for technology stocks, said Nicholas Gulden, an analyst at Salomon Smith Barney Inc. He predicted that PMC-Sierra Inc. and Vitesse Semiconductor Corp., a pair of chipmakers, will be among 16 companies deleted from the index.
The Nasdaq is scheduled to announce the annual membership changes after the close of trading. The biggest overhaul in the 17- year-old index took place in 1999, when there were 15 changes.
About three-quarters of today's additions will be consumer, health-care and industrial shares. These include Ross Stores Inc., a California-based discount retailer, First Health Group Corp., a provider of health benefits to large U.S. companies, and Fastenal Co., an industrial supplier, according to Gulden and analysts at Merrill Lynch & Co. and Credit Suisse First Boston.
Ryanair Holdings Plc, an Irish airline, also will probably be added, bringing the index's non-U.S. membership to five. The changes will go into effect Dec. 20.
Technology and telecommunications shares account for 76 percent of the index, down from 89 percent in March 2000, when the Nasdaq-100 peaked. The index has dropped almost 80 percent from its record high. Gulden expects tomorrow's changes to lower technology stocks' weight in the index by 3.5 percentage points.
Most Active Issue
The Nasdaq-100 is the basis for the most actively traded U.S. equity issue. About $30 billion is invested in funds tied to the index, most traded through an exchange-traded fund whose shares are known as the ``Triple-Q'' for its stock symbol, QQQ.
Trading in the ``Triple-Q'' has averaged more than 90 million shares a day this year, exceeding the 79.5 million average for shares of Cisco Systems Inc., the most active stock of a single company.
The QQQs are ``the instrument of choice for most institutional investors seeking short-term technology exposure,'' Gulden said.
Still, the reduction in technology shares' weighting has prompted some investors to stop trading the QQQs.
``Three years ago, we traded the Qs and used them for hedging purposes'' as a proxy for technology stocks, said Dodge Dorland, chief investment officer at Landor Investment Management. Now, ``we use it more as an indicator to identify the direction of tech momentum.''
New Rules
The overhaul is the first since Nasdaq announced new rules in October intended to change the index's membership more frequently and include more non-U.S. companies.
The rules enable Nasdaq to remove members throughout the year in case their market value falls too far. While the index is meant to represent 100 of the largest non-financial companies listed on Nasdaq, only stocks that stop trading there are currently taken out before an annual year-end revision.
Starting in 2003, index members may be removed throughout the year if their market value falls to less than 0.1 percent of the index at the end of two consecutive months.
In the past, companies have been removed from the Nasdaq-100 during the year only because of takeovers, bankruptcies and changes in their main stock listings.
Also new in 2003: no requirement that non-U.S. companies have minimum market values of $4 billion in U.S.-traded shares and $10 billion worldwide. Now, non-U.S. firms are judged simply on the value of their Nasdaq-traded shares and average trading volume.
New Members?
Microsoft Corp., Intel Corp. and Cisco Systems Inc. are the Nasdaq-100's three biggest members, accounting for 43 percent of its $1.2 trillion market value and 23.3 percent of the index.
The Nasdaq 100's four non-U.S. companies include Sweden's Ericsson AB, Flextronics International Ltd. of Singapore, Israel's Check Point Software Technologies Ltd. and Teva Pharmaceutical Industries Ltd., an Israeli company that was added last month.
Patterson Dental Co. will replace Gemstar-TV Guide International Inc. at the close of trading today.
Six of the 16 stocks Gulden expects the Nasdaq to drop are semiconductor makers or chip-related companies and five are biotechnology firms. He expects only one addition to be a technology stock: chipmaker Intersil Corp.
*T Gulden's expected additions:
Dentsply International Expeditors International of Washington Inc. Lamar Advertising Co. Whole Foods Market Inc. Ross Stores Inc. First Health Group Corp. Petsmart Inc. Intersil Corp. Pixar Inc. Fastenal Co. Henry Schein Inc. Ryanair Holdings Plc Patterson-UTI Energy Inc. American Power Conversion Corp. C.H. Robinson Worldwide Inc. Gentex Corp.
Gulden's expected deletions:
ADC Telecommunications Inc. Applied Micro Circuits Corp. Cytyc Corp. PMC-Sierra Inc. Human Genome Sciences Inc. Integrated Device Technology Inc. ImClone Systems Inc. Andrx Group Protein Design Labs Inc. Sepracor Inc. Atmel Corp. Abgenix Inc. i2 Technologies Inc. Conexant Systems Inc. Vitesse Semiconductor Corp. Charter Communications Inc. |
