This past week, the Nasdaq Stock Market announced the biggest change ever to the 17-year-old Nasdaq 100 Index, slashing the importance of tech-related shares in the benchmark. Consumer, health care and industrial stocks will replace the dumped technology companies.
"The changes Nasdaq is making to its index solidifies the Pacific's Technology 100 Index (Symbol: PSE) as the benchmark for technology," said Jonathan B. Werts, Vice President, Business and Product Development at the Exchange. "A price-weighted index made up of stable, established technology companies provides investors with a more accurate representation of the technology sector. The PSE Technology Index is a true representation of the tech sector, because it is exclusively driven by technology and technology-related companies. The Nasdaq index is now much broader based, and follows companies outside tech."
The PSE Technology Index was introduced in 1982 and is the industry's oldest technology index. In 1997, Morningstar selected the PSE Technology Index as its benchmark for evaluating the performance of technology mutual funds, because it more consistently tracks the technology sector, and has a broader weighting in technology than any other technology indexes.
"Technology stocks haven't fared well over the past three years, and technology investors are growing anxious," said Werts. "Since the introduction of the QQQs, the Exchange Traded Fund (ETF) based on the Nasdaq 100 Index, Nasdaq has looked for ways to increase performance to keep investors tied to its index. Unfortunately, in its quest to retain investors, the Nasdaq index has taken on the look of an actively managed mutual fund, rather than a market benchmark."
Construction is the most important aspect in creating an index. The PSE Technology Index is price-weighted, which means a stock's price per share, not its market capitalization, dictates its portfolio weighting. This leads to a more balanced distribution among its 100 holdings compared to market cap weighted indexes that are often concentrated in the largest components.
In the case of technology, price-weighting the components of the PSE Technology Index, has stood the test of time. As of November 30, the PSE Technology Index has consistently outperformed the Nasdaq 100.
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| 1-Yr | 3-Yr | 5-Yr | 10-Yr |
| PSE Tech Index | -24.20% | -12.07% | 11.44% | 19.11% |
| Nasdaq 100 Index | -30.02% | -27.77% | 1.29% | 12.50% |
Currently the only passive investment vehicle based on the PSE Technology Index is the North Track PSE Tech 100 Index Fund. As of November 30, 2002, the North Track PSE Tech 100 Index Fund held an overall 5-star Morningstar rating.
Morningstar proprietary ratings reflect the historical risk-adjusted performance as of the most recent month-end. The ratings are subject to change every month. Morningstar ratings are calculated from the fund's three-, five-, and 10-year average annual returns in excess of the 90-day Treasury bill, including loads, if appropriate, and risk factor that reflects fund performance below the 90-day treasury bill. The overall Morningstar rating is a weighted average of a fund's three-, five-, and ten-year, if applicable, performance. Of the funds in a Morningstar category, 10% receive five stars, 22.5% receive four stars, 35% receive three stars, 22.5% receive two stars, and 10% receive one star.
