Nasdaq-100 Outpaces the Dow and S&P 500

December 26, 2007

SAN DIEGO (ETFguide.com) - What a difference one year can make.

After lagging the Dow Jones Industrial Average and S&P 500 in the previous two years, stocks in the technology heavy Nasdaq-100 have lifted the exchange-traded fund (ETF) following it to post double digit gains so far this year.

Through the December 24th close, the PowerShares QQQ (Ticker: QQQQ) was ahead by 20.36 percent, outpacing both the Dow Diamonds (Ticker: DIA) and the SPDRs (Ticker: SPY).

Barring any major reversal in technology stocks, the Nasdaq-100 will likely be the best performing stock index of the three major barometers in 2007.

Top holdings that have boosted gains in the PowerShares QQQ are technology stalwarts such as Apple (ticker: AAPL), Google (ticker: GOOG) and Research in Motion (ticker: RIMM).

The Nasdaq-100 index consists of the 100 largest domestic and international non-financial companies listed on the Nasdaq Stock Market based on market capitalization. The index is screened because it excludes financial companies and non-Nasdaq listed stocks. The portfolio is rebalanced quarterly and reconstituted annually.

Despite lagging in 2007, ETFs tracking the Dow and S&P 500 have posted respectable gains. DIA is ahead by 10.79 percent and SPY is up by 6.75 percent.

The weak performance of banking and brokerage stocks has dragged down the financial sector, which accounts for a sizable 20 percent of the S&P's industry sector weighting. If it weren't for the abysmal performance of financial stocks, the S&P 500 would no doubt be much higher.

The First Trust Nasdaq-100 Equal Weight Index Fund (Ticker: QQEW) also tracks the Nasdaq-100, but with a twist. The index contains the same securities as the Nasdaq-100, but each of the holdings is set at an equal weight of 1 percent and rebalanced quarterly. QQEW is ahead by 12.26 percent.

With equal weighted indexes all holdings have the same impact on the performance of the index, whereas market cap weighted indexes tend to be dominated by the performance of the largest companies.