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Nasdaq 100 Index

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Financial Statistics as of 08/29/01
Total Market Capitalization $1.61 trillion
Average P/E N/A
Dividend Yield 0.07%

What Is It?

The Nasdaq 100 (NYSEMKT:QQQ) tracks the 100 largest stocks listed by the Nasdaq exchange. The Nasdaq "exchange" is somewhat theoretical, as it has no lofty building on Wall Street to call home. Essentially, it is a computer network that allows brokers to trade among themselves. The Nasdaq 100 began trading in March of 1999 under the symbol QQQ. Brokers call these index shares Qs or Qubes (Q cubed, get it?).

Fun Fact

NASDAQ used to be an acronym that stood for the National Association of Securities Dealers Automated Quotation. Like New Kids on the Block (NKOTB), it dropped the acronym and is now known only as the Nasdaq (no caps, please).

Type of Companies

Nasdaq companies tend to be smaller and younger than New York Stock Exchange companies, but the exchange also lists Dow Jones Industrial Average giants Microsoft and Intel. Although there is no attempt to select tech stocks for the Nasdaq 100, this index is often treated as a "tech stock" index simply because it's components are mostly new technology companies.

Number of Companies

100 (Duh!)

Top 10 Weighted Companies as of 8/29/01
Microsoft (MSFT) 10.76%
Intel (INTC) 6.52%
Qualcomm (QCOM) 5.55%
Cisco Systems (CSCO) 4.27%
Amgen (AMGN) 3.20%
Oracle (ORCL) 2.87%
Maxim Integrated Prod. (MXIM) 2.09%
Dell Computer (DELL) 2.07%
Applied Material (AMAT) 1.84%
Linear Technology (LLTC) 1.74%
Based on Market Capitalization.
Industry Composition as of 8/29/01
  # of
cos.
% of index
Consumer Discretionary 13 13.0%
Healthcare 11 11.0%
Industrials 9 9.0%
Information Tech 66 66.0%
Materials 1 1.0%

How It Is Measured

The Nasdaq 100 is measured using a modified capitalization weighting method. Essentially bigger companies are more heavily weighted but some modification to the weighting is made to keep the large companies from completely overwhelming the smaller ones. The actual weighting algorithm is proprietary.

Strengths

The stocks of the Nasdaq 100 are typically tech stocks that have "made it." Many of these companies didn't exist 25 years ago, but have come to dominate their markets. If you believe that new technologies will ultimately provide higher investment rewards than established companies, Qubes are an easy way to hold a somewhat diversified basket of such companies.

Weaknesses

Because it is so heavily weighted in tech stocks, the Nasdaq 100 can be extremely volatile. In 1999 it was up 81%. That outstanding performance was followed by a 37% drop in 2000. For investors Qubes are likely to be a wild ride.

Investing in the Nasdaq Composite

You can buy shares of the Nasdaq 100 from any stock broker. Shares trade throughout the day under the trading symbol QQQ. QQQ shares are priced at approximately 1/40th the value of the Nasdaq 100 index.

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