SPDRs and Dow Jones Diamonds Review
Quick review of the Nasdaq 100 Trust, S&P 500 SPDRs (SPY), and Dow Jones Diamonds (DIA), and the component influence
Nasdaq 100 Trust
This trust represents the largest and most active nonfinancial domestic and international issues listed on the Nasdaq stock market based on market capitalization. The composition is reviewed quarterly and adjustments are made as necessary. As of this writing, the ten largest holdings account for 43 percent of the index�s movement, while the top twenty names account for 60 percent of the index�s movement. At right are the top twenty stocks in the QQQ, listed in descending order of the percent of the index they comprise.
SPDRs (SPY)
Standard & poor�s depositary receipts are based on the S&P 500 Composite Stock Price Index. The SPY is essentially onetenth the price of the S&P 500 Index. The SPY can also pay quarterly cash dividends representing dividends accumulated on the stocks of the S&P 500, less fees and expenses of the trust. The top ten capitalized stocks in the S&P 500 account for 25 percent of that index�s movement. In a capitalization-weighted index, the larger the capitalization, the more influence the stock has. In other words, Microsoft gets more votes than Citigroup. On page 58 is a listing of the top twenty capitalized stocks on the SPY. The top twenty stocks in the SPY account for 39 percent of the movement of the index. Or, said another way, 4 percent of the stocks in the index carry 39 percent of the weighting.
Dow Jones Diamonds (DIA)
On january 20, 1998, the Dow Jones DIAMONDS (DIA) started trading. This security allows investors to buy and sell shares on an entire portfolio of Dow Jones stocks. The DJIA is a price-weighted index and not a capitalizationweighted index. In a price-weighted index, the higher the stock price, the more effect it has on the average. For instance, let�s say Intel (INTC) and Walt Disney (DIS) both rallied 10 percent. For Intel, that would be 13.2 points, and for Disney it would be 3.8 points. Intel would add 74.66 points to the DJIA, but Disney, only 21.49 points. The ten highest-priced stocks in the Dow Jones account for 51 percent of the movement of that index.
In November 1999, the DJIA changed four members, adding Microsoft, Intel, SBC Communications, and Home Depot, while removing Sears, Union Carbide, Chevron, and Goodyear Tire. At this writing, the current divisor of the DJIA is .1768. Therefore, for each one-point-up move in a stock, the DJIA moves up 5.66 points. If every stock in the Dow Jones were up or down one point, the Dow Jones would be up or down 169.68 points
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