NYSE Arca Tech 100 ETF Offers Challenge To QQQQ

The oldest technology index in the world met the newest craze in investing last week, as the Ziegler Exchange Traded Trust company rolled out the NYSE Arca Tech 100 exchange-traded fund (NYSE: NXT) on the New York Stock Exchange.

The fund poses a direct challenge to one of the most popular ETFs on the market, the Nasdaq-100 ETF (QQQQ). It tracks the performance of the Pacific Exchange 100 Index, which has now been renamed the NYSE Arca Tech 100, after a series of mergers.

That index is a price-weighted index of leading technology companies, meaning that the stocks are weighted not by market capitalization, but by the dollar price of the shares. It is the same methodology behind the Dow Jones Industrial Average, and while considered archaic by modern standards, it produces interesting results: namely, an index that provides more representation to companies with smaller capitalization.

That’s important for some investors. One common criticism of the Nasdaq-100 is that it provides huge weightings to a very few companies. Five stocks – Apple, Microsoft, Qualcomm, Google and Cisco – make up 27 percent of that index. By contrast, the top five stocks in the Nyse Arca Tech 100 – IBM, Lockheed Martin, Apple, Genentech and Amgen – represent just 14 percent of the index.

Over longer time periods, this price weighting system has led to stronger results, as shown below.

One downside to the fund is the expense ratio, which, at 50 basis points, is more than twice as high as the 20 basis point fee assessed by the QQQs (which is how the Nasdaq contineues to refer to the fund even though it picked up a Q when it moved its listing to the Nasdaq Stock Market).

NXT isn’t going to surpass the QQQs, but for investors looking for a different slant on the Technology sector, it is an interesting choice.

The prospectus is available here.