"For the past six months, the NOW 50 has shown a lower level of volatility than any of the above mentioned indices, with its high and low ranges varying by 15.9%, compared to 16.1% for the S&P 500, 17.3% for the Dow, and 39.2% for the Nasdaq."
The NOW 50 Index Second Quarter Report
By Bill Mann (TMF Otter)
July 5, 2000
July 1, 2000 marked the six-month mark since the launch of The Motley Fool NOW 50 Index. In the time since the launch, various portions of the stock market have seen some levels of volatility unknown over the last decade. In fact, some pundits have begun to opine that the 17-year bull market has come to an end.
The mid-year results of the NOW 50 suggest otherwise. The NOW 50 closed on June 28 at 1985.22, a mere 0.75% below its year-beginning level of 2000. This compares with drops of 2.1% for the S&P 500, 3.7% for the Nasdaq Composite, and 8.1% for the Dow Jones Industrial Average.
But indices are not about performance. They are about measurement. We could choose to view the fact that the NOW 50 has outperformed these other major indices as some sort of victory, but it is not. In fact, it's not even really part of the equation.
Why is this? Well, because indices and portfolios are different beasts. With a portfolio, the key measure of success is to garner superior returns on investment. Not so with an index. For example, the Nasdaq Composite finished the end of 1999 more than 80% above where it began the year. Wonderful returns, but just what is this supposed to tell us? That the economy was 80% more powerful than a year before? The appropriate response is "which economy?" But deeper, unless performance of the Nasdaq Composite can be equated as a measure of something larger, it is nothing more than an aggregate of the market performance of the 4600 companies listed on the Nasdaq. It is not a good proxy for technology, nor the U.S. economy, nor the global economy. Rather, it is only a measure of how Nasdaq companies performed in the market.
Such a measure is why the granddaddy of indices, the Dow Jones Industrial Average, was formed 120 years ago. But the Dow still has some significant weaknesses: It has an outsized portion of companies that are not as relevant to global commerce or to investors; it is domestic in scope; and it is price weighted, meaning that each company has an equal effect on the index. Seriously, does Caterpillar (NYSE: CAT) -- a wonderful company to be sure -- really have so much power that it should be a critical measure of the economy?
The S&P 500 is, in our opinion, a much better measure for the economy (but like all indices, it is a market beast, not an economic one). In fact, the S&P 500 or the Wilshire Total Market Index may be the best market-based proxies for the performance of the U.S. economy. The NOW 50 is too new for us to claim that mantle. But a review of S&P 500 companies shows that a large number of them are unrecognizable to the average investor, that they are once again entirely U.S.-based, and that the top 10 components make up 24.5% of the index weighting. Still, the 70% share of total U.S. public market capitalization held by the companies in the S&P 500 make it a powerful measure. The NOW 50, on the other hand, is focused on the most relevant businesses in the global market, regardless of domicile.
For the past six months, the NOW 50 has shown a lower level of volatility than any of the above mentioned indices, with its high and low ranges varying by 15.9%, compared to 16.1% for the S&P 500, 17.3% for the Dow, and 39.2% for the Nasdaq. Given the level of doomsaying that has accompanied the recent swoon of companies in the Nasdaq and the perception of extreme volatility as a result, the relative stability of the NOW 50 comes as a pleasant surprise, as it does contain some highly speculative companies.
The NOW 50 is reweighted quarterly, with the last readjustment occurring on June 15. For more details on the method used to weight the index, check out the article on the NOW 50 Index weighting and valuation.
Below are the new weightings for each company:
Updated 7/5/00
# Ticker Company Market Cap
(in Billions) Weighted
Market Cap % of Index (new) % of Index (old)
1 BGEN BIOGEN 8.463 16.926 0.26% 0.36%
2 ARMHY ARM HOLDINGS 9.589 19.178 0.29% 0.35%
3 GMH HUGHES ELECT. 14.259 28.518 0.43% 0.51%
4 COST COSTCO 14.827 29.654 0.45% 0.69%
5 AMZN AMAZON.COM 16.292 32.584 0.50% 0.67%
6 NWS NEWS CORP. 26.171 52.342 0.80% 0.86%
7 GPS GAP STORES 27.096 54.192 0.83% 1.19%
8 AUD ADP 34.300 68.600 1.04% 0.96%
9 SCH CHARLES SCHWAB 41.585 83.170 1.27% 1.21%
10 SLB SCHLUMBERGER 41.826 84.751 1.27% 1.26%
11 MCD MCDONALD'S 42.925 84.751 1.29% 1.31%
12 CWP CABLE & WIRELESS 47.991 89.817 1.37% 1.44%
13 DD DUPONT 50.387 92.213 1.40% 1.45%
14 ENE ENRON 52.158 93.984 1.43% 1.39%
15 DCX DAIMLERCHRYSLER 55.117 96.943 1.48% 1.63%
16 MDT MEDTRONIC 60.158 101.984 1.55% 1.54%
17 PEP PEPSICO 62.504 104.330 1.59% 1.38%
18 AMGN AMGEN 68.216 110.042 1.68% 1.56%
19 AMAT APPLIED MAT. 68.360 110.186 1.68% 1.65%
20 UPS UPS 71.544 113.370 1.73% 1.65%
21 AXP AMER. EXPRESS 74.143 115.969 1.77% 1.55%
22 PG PROCTER & GAMBLE 74.223 116.049 1.77% 1.82%
23 SNE SONY 74.649 116.475 1.77% 2.25%
24 YHOO YAHOO! 75.877 117.713 1.79% 1.92%
25 BRK.B BERK. HATHAWAY 87.305 129.131 1.97% 1.77%
26 HBC HSBC HOLDINGS 101.400 143.226 2.18% 2.07%
27 TWX TIME WARNER 105.800 147.626 2.25% 2.34%
28 T AT&T 107.500 149.326 2.27% 2.60%
29 HD HOME DEPOT 117.700 159.526 2.43% 2.50%
30 DELL DELL COMPUTER 121.400 163.226 2.49% 2.52%
31 JNJ JOHNSON & JOHNSON 126.000 164.146 2.50% 2.29%
32 AOL AMERICA ONLINE 126.400 164.226 2.50% 2.52%
33 TXN TEXAS INSTRUMENTS 131.700 165.286 2.52% 2.46%
34 KO COCA-COLA 138.000 166.546 2.54% 2.45%
35 SUNW SUN MICROSYSTEMS 146.200 168.186 2.56% 2.57%
36 EMC EMC 160.800 171.106 2.61% 2.46%
37 MRK MERCK 167.400 172.426 2.63% 2.52%
38 PFE PFIZER 181.400 175.226 2.67% 2.51%
39 AIG AMER INTL GROUP 190.000 176.946 2.69% 2.53%
40 LU LUCENT 195.400 178.026 2.71% 2.75%
41 IBM IBM 207.100 180.366 2.75% 2.69%
42 C CITIGROUP 218.900 182.726 2.78% 2.64%
43 ORCL ORACLE 232.400 185.426 2.82% 2.78%
44 WMT WAL-MART 247.800 188.506 2.87% 2.80%
45 NOK NOKIA 268.800 192.706 2.93% 2.79%
46 XOM EXXON MOBIL 287.000 196.706 2.99% 2.92%
47 MSFT MICROSOFT 380.900 215.126 3.28% 3.63%
48 INTC INTEL 429.500 224.826 3.42% 3.33%
49 CSCO CISCO 467.100 232.366 3.54% 3.45%
50 GE GENERAL ELECTRIC 513.200 241.586 3.68% 3.45%
sum 100% 100%
Here are some statistics about the NOW 50, calculated as of its most recent rebalance.
High YTD: 2172.84
Low YTD: 1850.56
Range: 15.9%
Total Market Cap: $6.57 trillion
YTD Market Cap Change: +$310 billion
Index Weight of Top 10 Holdings: 31.07%
Top Performers: Enron +96.8%, Oracle +84.2%, Tex. Inst. +68.4%
Worst Performers: Amazon -49.4%, Procter & Gamble -48.8%, AT&T -37.2%
Mean Market Cap: $94.4 billion
As always, we encourage you to post your opinions on the NOW 50 Index on our discussion board. The next update will be on September 15, 2000. We also have the potential to add a new company should the AOL/Time Warner merger be completed. This is scheduled to take place in November. As this date approaches, we will once again open up the floor to community nominations for the replacement company. The original NOW 50 was culled from 2700 nominations of 288 different companies.
Fool on!
Bill Mann, on behalf of the NOW 50 Trusty Trustees
David Braze
Matt Richey
Ann Coleman
David Gardner
Brian Bauer
Brian Graney
Bill Mann
Selena Maranjian
Chris Rugaber
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