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Four Hot Trends From the Hottest Exchange

The Amex is the Annika Sorenstam of Wall Street -- an overlooked powerhouse in a smaller league that has broken into the big time in a powerful, splashy but somewhat mysterious way.

You haven't seen any headlines about the American Stock Exchange on any finance magazines, but there's no denying that the companies that list there, in aggregate, have consistently outpaced their rivals on the New York Stock Exchange and Nasdaq Stock Market in the past one-, three-, five- and seven-year periods. Take a look at this table below, which compares the Amex composite with the Nasdaq Composite, Dow Jones Industrials, S&P 500 and Russell 2000.

Because most of the companies that list on the American Stock Exchange are small and medium-sized companies, one might guess that the success of its composite is a small-cap phenomenon. (Only 12 Amex stocks weigh in at more than $1 billion in market capitalization.) Yet the Amex has handily beaten the small-cap Russell 2000 index in every period.

And because it did well in periods of softness for highflying growth stocks, one might guess that its success can be laid to a concentration of value stocks. Yet, again, it's clear that the Amex is beating the highflying Nasdaq, even in this year of sharp rebound for tech stocks.

So where is its persistent strength coming from, and how can we take advantage of it?

Index performance
Amex Nasdaq S&P 500 Dow Russell 2000
January 2003 to May 2003 10% 9% 3% 0% 6%
January 2002 to May 2003 9 -24 -18 -15 -15
January 2001 to May 2003 4 -34 -28 -19 -10
January 2000 to May 2003 5 -64 -37 -24 -16
January 1997 to May 2003 56 17 26 33 15
Source: MSN

Big Changes

First, a quick primer. The American Stock Exchange has changed quite a bit in the past 10 years, but perceptions die hard. A decade ago, it was considered a dead-end alternative listing venue for companies that couldn't meet New York Stock Exchange or Nasdaq requirements -- a backwater for companies with sometimes shady reputations. In the late 1990s, new management cleaned house and decided to turn it into a niche exchange serving small and mid-cap companies that sought more handholding than the NYSE could provide and less volatile trading than the Nasdaq could provide.
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