Can Shares of the QQQ Ever Split?

Do index-tracking stocks, such as the Nasdaq 100 tracking stock (QQQ) and Diamonds (DIA), ever split?

-- Mike deCock

Mike,

I swear this is the last question I am going to answer about the QQQs and any related index product until the fall or until some major catastrophe (and I don't mean tornadoes in the Midwest).

I started writing about the triple-Q tracking stock before it was launched earlier this year, and I thought I had answered every possible question until yours came along. You can read my general explanation or the subsequent article. Plus, Alison Moore wrote an article in April about triple-Qs, Diamonds and Standard and Poor's Depositary Receipts (SPY), called SPDRs or "spiders."

Still, I thought your question was worth addressing.

I can see why you would ask. The shares of these index-tracking stocks all trade at more than $100. In theory, the Nasdaq-Amex Market Group, which offers these instruments, could split these shares to lower the per-share price. But the Nasdaq-Amex has no plans to do that in the foreseeable future, says Jay Baker, vice president of derivatives marketing and research.

In concept, a company might split its shares to make the price more psychologically appealing to investors and to boost demand for the stock. However, for these index-tracking stocks, both volume and investor interest are strong enough that a share split is not warranted, says Baker. On Monday, for example, the volume for the triple-Qs was 4,953,400 shares, while Spider volume was 6,268,100.

Perhaps you are worried about buying shares for yourself at such high prices. If you were forced to trade these securities in round lots (100 shares), then you would need to cough up well over $10,000 for each lot. But these index-tracking stocks also can be bought in odd lots (increments under 100 shares). If you have only a few hundred dollars to invest, you can do that as well. "On the QQQ, there is a tremendous amount of shares traded in odd lots," says Baker. You can purchase shares from a full-service or discount broker, although you will pay undoubtedly pay less with a discounter.

Having said all of the above, maybe you are asking about something wholly different: not a share split, but a change in the pricing ratio. For example, each share of the Nasdaq 100 trust equals 1/20th of the Nasdaq 100 index. To the extent that dividends don't cover the expenses and capital-gains distributions, a portion of the trust's holdings would be sold to make these payments, says Diane Garnick, equity derivatives strategist at Merrill Lynch (MER). If that happens, this ratio of 1/20 should decrease over time as these management fees and capital-gains distributions eat into the trust's assets, and there would be some performance difference between the tracking stock and the underlying index.

I encourage you to visit the Nasdaq-Amex's Web site if you still have questions about any of these securities. Or read about them on our site.

Following Monday's column, I have received some choice comments from readers, who are sharing their own peeves about fund company Web sites. I will be sharing the best of the lot in Wednesday's column. If you still want to share some of your own irritations (or compliments), email me at [e-mail].

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