-- Bill Aylor
Yes, there are. They are called
(for the S&P 500) and
(for the Dow Jones Industrial Average). Like the Nasdaq tracking stock, SPDRs and Diamonds trade on the
American Stock Exchange
and are offered by the Nasdaq-Amex.
To compare these products, let's first look at the Nasdaq 100 tracking stock.
Launched in March, the Nasdaq 100 tracking stock packages all the stocks in the Nasdaq 100 in a single share that trades on the Amex under the ticker symbol QQQ. Each Nasdaq 100 share represents a stake in a unit investment trust that holds shares of the companies in the Nasdaq 100 index. The trust is designed to track closely the price and yield performance of the index, so your Nasdaq 100 shares will move up or down in value when the index moves up or down.
Shares in the Nasdaq 100 trust are created in blocks of 50,000 by large investors or institutions and are priced at 1/20th the value of the Nasdaq 100. So if the Nasdaq were trading at 2200, a share in the Nasdaq 100 trust would cost $110. Individual investors buy and sell Nasdaq 100 shares in the secondary market, where prices are subject to supply and demand.
Just like stocks, Nasdaq 100 shares can be traded through a discount or full-service broker at any time during the trading day. Shares trade in increments of 1/64 of a dollar and may be bought on margin, sold short or held for the long term. The cost to buy depends on the commission charged by your broker. Annual operating costs of the trust are expected to be about 0.18%, or $1.80 per $1,000.
Investing in the Nasdaq 100 is likely to be more tax-efficient than buying shares in an actively managed portfolio because the Nasdaq 100 trust merely tracks the index and is not expected to trade securities actively, which can trigger high capital-gains distributions. Dividends, if any, are paid in cash quarterly.
The market for Nasdaq 100 shares, though new, is active -- which is critical, since share prices are subject to supply and demand. The trust has about $500 million already invested, according to an Amex spokesman. Share volume on Monday was more than 2.8 million.
SPDRs (pronounced spiders) are created and traded just like Nasdaq 100 shares under the ticker symbol SPY. The cost to buy and own shares is similar to that of the Nasdaq 100 shares. And SPDRs enjoy the same tax-efficient characteristics as the Nasdaq 100 shares. But these securities differ in three important ways:
- First, and most obvious, SPDRs are based on a different index. Each SPDR represents a stake in a unit investment trust that holds the companies in the S&P 500.
Second, new SPDR shares are initially priced to trade at one-tenth the price of the S&P 500, not 1/20th, like the Nasdaq 100 shares. So if you buy a SPDR share when the S&P is at 1250, it should be priced at about $125.
Third, the SPDR trust is older and much larger than the Nasdaq 100 trust. SPDRs were launched in 1993. Currently, the trust has about $13 billion invested. Accordingly, volume in SPDRs is greater than in Nasdaq 100 shares. On Monday, 5.8 million SPDRs changed hands.
Diamonds are the Dow Jones Industrial Average's equivalent to Nasdaq 100 shares and SPDRs. They are created and traded in the same way as Nasdaq 100 shares and SPDRs under the ticker symbol DIA. The cost to buy and own is about the same as the other two securities. Here's how they differ:
- Diamonds are shares in a unit investment trust that holds the 30 stocks that make up the Dow Jones Industrial Average.
Diamonds are initially priced at 1/100th the value of the Dow, so if the Dow is trading at 10,000, one Diamond share would equal $100.
The market for Diamonds is just over a year old. Still, assets in the Diamonds trust are about equal to those in the much younger Nasdaq 100 Trust -- currently about $500 million. Monday's share trade volume was 457,400 -- considerably lower than for Nasdaq 100 shares and SPDRs.
Diamonds pay dividends monthly while the other two trusts pay only quarterly.
Nasdaq-Amex also offers other index-based products. Some are based on individual S&P sector indices, others on foreign indices. There's even a mid-cap SPDR that is based on the
index. You can check out these products on the Amex Web site at
Send your questions to
firstname.lastname@example.org, and please include your full name.
TSC Fund Forum aims to provide general fund information. Under no circumstances does the information in this column represent a recommendation to buy or sell funds or other securities.