Nasdaq Index Blog - Posts with tag of "John Jacobs"

Video: John Jacobs on The Future of Our Index Business By: John Jacobs
on 8/1/2014

John Jacobs, Executive Vice President, NASDAQ OMX Global Information Services, addresses the the future of our indexing business in the fifth installment of his video series.

Transcript: Let’s take a look at where we think NASDAQ OMX Global Indexes will be in a year or two down the road. As a global indexer with multi-asset classes, our near term strategy is to continue to roll out our superior technology on two fronts: The ability to calculate more indexes across more asset classes, so you’ll see us adding in more asset classes like fixed income and commodities. And the ability to have a superior data offering. We’re going to be able to offer data in a far more convenient fashion to the end user in a better way than it’s ever been offered before. So those are two near-term strategies. In addition, there’s been a tremendous movement and demand from the buy side and the sell side, those firms on the street, and those ultimate investors, for more custom capabilities and calculation, and we’re going to be offering a lot more custom indexes to partner with different firms, so they can find exactly what they want for their investment thesis. Whether they want geography or style or some other asset class, we’ll be able to provide that for them. So you’ll see a lot of growth in the custom [indexing]. You’ll continue to see us roll out more exchange traded products. You’ll see more structured products, and you’ll see a richer data set come out from us, both price data and weights and components. We also have recently announced that we’re acquiring eSpeed, which is a fixed income business, so you’ll be seeing a rich data set from fixed income, on-the-run treasuries, and an index family as well. So the next one to two years is going to be a very exciting time for NASDAQ OMX Global Indexes as we continue to fill out our mandate of multi-asset class, a scalable technology solution, create a better value proposition, and the richest, most robust data set in the index business.

Video: John Jacobs on The Importance of Scalable Technology By: John Jacobs
on 6/24/2014

John Jacobs, Executive Vice President, NASDAQ OMX Global Information Services, addresses the Importance of Scalable Technology in the second installment of his video series.

Transcript: To be a full service index calculator, and the world is moving to a smaller number of much larger full-service index calculators or indexers, you need a robust calculator. This business is moving to a model that’s built on scale, a technology scale. That is a strong spot of the NASDAQ OMX Group and we built the most scalable technology to trade securities around the planet. Now I say securities specifically, not just stocks, because we power a variety of different kinds of markets. So when it comes to an index calculation, you need to be able to calculate a variety of indexes across multiple asset classes; Not just equities, but commodities, you need to be able to do currencies, you need to be able to do fixed income and a variety of other things. It needs to be fast, it needs to be able to take in multiple data inputs, and it needs to be able to deliver that in a very robust data center that can be consumed by investors a lot of different ways. You can’t build that with a very expensive cost structure, it won’t be competitive. So that is the importance of having a technologically scalable index calculator at the core of your index business and we are very excited that we have built what we consider the absolute state-of-the-art best one on the planet.

Video: John Jacobs on Growth in the Dividend & Income Index Business By: John Jacobs
on 6/18/2014

John Jacobs, Executive Vice President, NASDAQ OMX Global Information Services, addresses the growth of Dividend & Income Index Strategies in the first installment of his video series.

Transcript: Since 2007, 2008, since the financial crisis, it’s been very difficult for institutional and individual investors to find yield. So dividend investing has a lot of advantages because it guarantees investors a yield on their portfolio instead of just relying on the performance of the stock, or the underlying stocks in the ETF. So with the acquisition of the Dividend Achievers suite of products, we can marry that with our income family of products and offer investors a suite of different indexes to use. The indexes are a basis for a variety of ETFs and other types of products and it’s another stepping stone for NASDAQ as we continue to build out our Global Index business, which has become multi-asset class and, as well, multi-different investment style.

Picking the Right Index By: John Jacobs
on 1/13/2014

Stepping up to the plate to take your first swing at ETF investing has never been simpler and more cost effective, but as eager investors approach these products, are the really understanding the differences in in portfolio composition? Index formulation methodology could likely have a much greater impact on bottom-line performance than fee structure over time. Now that we have a fair amount of price history for comparative analysis, the differences in index construction can amount to a sizeable margin of total return over time.

This is precisely why many exchange-traded product providers are setting their sights on challenging the traditional cap-weighted styles for more exotic, alternative, or smart index strategies. However, these innovative strategies still have a big hill to climb, as cap-weighted indexes still control the largest share of assets under management in the ETF universe.

There is no hard and fast rule to index selection, which is why investors need to be more conscious than ever about the options that are available and how to ultimately select an appropriate fund.

The Basics
There are three primary index construction techniques that publishers use to construct the allocation size in an equity-oriented ETF: market capitalization weight, equal weight, and fundamental weight.

Let’s begin with the index blueprint that most investors are familiar with: market-cap weighting sizes constituent securities according to the total market value of their outstanding shares. In a real world example, examining the PowerShares NASDAQ 100 ETF (QQQ), Apple Inc. (AAPL) occupies roughly 12.5% of the fund due to its $500 billion market cap. On the flip side, the smallest holding, F5 Networks (FFIV), only occupies 0.17% due to its much smaller $7 billion market cap.

Quite simply, a cap-weighted index will advance or decline more dramatically in value in response to the changes in market value of larger holdings vs. smaller holdings. One inherent benefit to this style of index composition is that traditionally larger, more established companies will present less volatility than smaller ones.

However, it’s also important to bear in mind that investors who select cap-weighted indexes are essentially disproportionately tilting their equity allocations toward larger companies that can inhibit performance characteristics over the long term. In a recent study by Goldman Sachs Asset Management that examined the stock market over the past 20 years, it was proven that small and mid-cap stocks have outperformed large cap stocks by a fair margin while presenting only slightly higher volatility.**

Using the same scenario, equal weight indexes are often created using the same list of stocks as cap-weighted indexes. However, instead of examining the size of the company, an equal weight index allocates identical proportion amongst all the constituent securities. So, Apple Inc. would carry an identical weight within the index as F5 Networks, which is the goal behind the NASDAQ-100 Equal Weighted Index. At first glance, this type of weighting strategy might seem illogical in relation to the aforementioned cap weighted style, as investors may instinctively want to own a larger share of mature, successful companies. But, it can often be prudent to carry a larger slice of the pie in small and medium capitalization companies in a rising market environment.

Using a relevant 2013 performance comparison, the cap-weighted SPDR S&P 500 ETF (SPY) has gained 28.97%, while the Guggenheim Equal Weight S&P 500 ETF (RSP) is up 31.74%, a divergence of 2.77%. In comparison, RSP carries an expense ratio nearly four times higher than SPY at 0.40%, making for a compelling value proposition even in light of a higher fee structure. Investors should also be mindful that a larger portion of their invested capital is allocated to companies that are smaller in size, which has been known to exhibit higher beta over time.

Relatively new when compared to the other two strategies, the last type of index methodology is a fundamentally weighted group of stocks. These indexes are developed to account for comparable company metrics such as book value, earnings, revenue, or even dividend rates. Companies exhibiting the strongest traits based upon the screening methodology are then assigned the largest weight within the index.

The beauty of fundamentally allocating to companies using performance based metrics is the ability to overweight a company that is currently undervalued by the market, and vice-versa for overvalued examples. It also gives investors the ability to zero in on a specific metric, such as free cash flow, and apply that metric across a single sector. A striking example illustrating the effectiveness of fundamentally weighted strategies could be made using the First Trust Consumer Staples AlphaDex ETF (FXG) and the SPDR Consumer Staples ETF (XLP). FXG is currently up 39.83% year-to-date, while XLP has risen 25.44% through the same time frame, totaling a staggering divergence of 14.39%.

Selection and Application
Choosing the right index for your personal needs doesn't come down to typical investment roadblocks such as size or accessibility, but rather your individual goals and tolerance for volatility. In other words, investors have become accustomed to traditional market-cap weighted indexes due to their long running history. This is precisely why you should ask yourself whether you feel comfortable stepping outside the classical approach to index investing. In reality, you could conceivably pay a higher fee in order to gain the potential reward that the index you choose hits the market's sweet spot.

As demand evolves for more complicated and specific benchmarks, index construction is growing far more complex. Regardless of strategy, it is imperative that investors demand that index providers bring the highest quality, objective, transparent and rules-based indexes to the market. Indexers must ensure that they have the best available data and technology to match the growing complexities, and methodologies must remain open and transparent to allow for optimal tracking by investors, product issuers and traders.

The overarching conclusion that can be drawn from the differences between these three strategies is the universal shift from overweight positions in large well-known names to concentrated positions in smaller, more nimble, or fundamentally sound companies. These traits should immediately appeal to those investors seeking the chance to outperform traditional benchmark indexes, but it will likely come with the cost of increased volatility over time.

Conversely, cap weighted indexes might still be the right fit for investors who believe in the strength of large companies to dominate a specific segment of the market, and don't want to risk the chances of underperforming traditional market barometers. Undoubtedly, the market for alternative index strategies is growing and attracting assets. Educating yourself on the intricacies of these new products and their potential benefits will ultimately strengthen your investment selection process. Performing your own due diligence alongside your individual goals should lead you down the path of picking the appropriate index that meets your unique investment needs.
*Performance data provided by Yahoo! Finance Through November 30th, 2013

*Goldman Sachs Asset Management White Paper “The Case for Mid-Cap Investing” June 2013, p. 2

Published in January 9, 2014

Annual Changes to the NASDAQ-100 Index Updated: 12/13/2013

The annual re-ranking of The NASDAQ-100 Index, composed of the 100 largest non-financial stocks listed on The NASDAQ Stock Market®, occurs this month.

Effective prior to market open on Monday, December 23, 2013, the following five securities will be added to the Index: DISH Network Corporation (NASDAQ: DISH), Illumina, Inc. (NASDAQ: ILMN), NXP Semiconductors N.V. (NASDAQ: NXPI), TripAdvisor, Inc. (NASDAQ: TRIP) and Tractor Supply Company (NASDAQ: TSCO).

“The NASDAQ-100 Index is a globally recognized brand that includes 100 of the world’s most dynamic non-financial stocks listed on The NASDAQ Stock Market," said NASDAQ OMX Executive Vice President John L. Jacobs. "The objective, transparent re-ranking process ensures that the NASDAQ-100 remains a relevant investable index that is the underlying benchmark for approximately 7,200 products in 23 countries with a notional value of approximately $1 trillion.”

The NASDAQ-100 Index dates to January 1985 when it was launched along with the NASDAQ Financial-100 Indexâ, which is comprised of the 100 largest financial stocks on NASDAQâ. These indexes act as benchmarks for investment products such as options, futures, and funds. The NASDAQ-100 is re-ranked each year in December, timed to coincide with the quadruple witching expiration Friday of the quarter.

On a cumulative price return basis, the NASDAQ-100 Index has returned almost 2800% since inception, although past performance is not indicative of future performance.

The NASDAQ-100 Index is the basis of the PowerShares QQQ Trust (NASDAQ: QQQ), which aims to provide investment results that, before expenses, correspond with the NASDAQ-100 Index performance. In addition, options, futures and structured products based on the NASDAQ-100 Index and the PowerShares QQQ Trust trade on various exchanges.

As a result of the re-ranking, the following five securities will be removed from the Index: Fossil Group, Inc. (NASDAQ: FOSL), Microchip Technology Incorporated (NASDAQ: MCHP), Nuance Communications, Inc. (NASDAQ: NUAN), Sears Holdings Corporation (NASDAQ: SHLD) and DENTSPLY International Inc. (NASDAQ: XRAY).

Read more about NDX-100.  


Nasdaq® and Nasdaq® are registered trademarks of The Nasdaq Group, Inc. The information contained above is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. Neither The Nasdaq Group, Inc. nor any of its affiliates makes any recommendation to buy or sell any security or any representation about the financial condition of any company. Statements regarding Nasdaq-listed companies or Nasdaq proprietary indexes are not guarantees of future performance. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results. Investors should undertake their own due diligence and carefully evaluate companies before investing. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED.

© 2015. The Nasdaq Group, Inc. All Rights Reserved.