Is the Nasdaq Really Underperforming? - The Apple (AAPL) Effect

Posted by Bigtrends on February 14, 2013 8:08 AM

Is the Nasdaq Really Underperforming? - The Apple (AAPL) Effect Is Tech Really Underperforming? There's been a lot of talk recently about Technology's underperformance over the past few months.  If you look at a comparison between the performance of the S&P 500 (SPX) (SPY) and the "tech heavy" Nasdaq 100 (NDX) (QQQ), it is clear that the S&P 500 has been outperforming.  Since the start of August, the S&P 500 has risen by close to 10%, while the Nasdaq 100 is up by just slightly more than half that amount (5.26%). NDX vs SPX Chart Using the Nasdaq 100's performance as a proxy for Technology may not be the most accurate gauge of how Technology is doing, though.  Because shares of Apple (AAPL) account for about 20% of the Nasdaq 100, it is probably more accurate to call the index Apple heavy instead of tech heavy.  Taking a different approach, in the chart below we compared the performance of the Nasdaq 100 to the performance of each of the index's components on an equally-weighted basis. Here, each stock has the same weighting, so rather than having a 20% weighting in the index, AAPL is just like every other stock and only has a 1% weighting.  Based on this approach, the Nasdaq 100's performance looks considerably better with a gain of 15.43% compared to 5.26% for the Nasdaq 100 weighted index. NDX vs NDX Equalweight Chart Comparing the performance of the Nasdaq 100 equal-weighted index to the S&P 500 shows that Technology (using Nasdaq 100 stocks as a proxy) is doing rather well. SPX vs NDX Equalweight Chart In order to make a true apples to apples comparison between the two indices, we should also look at the performance of the S&P 500 on an equally-weighted basis.  In the chart below, we show the performance of the S&P 500 and compare it to the performance of the Nasdaq 100 and S&P 500 equal-weight indices.  (The SPX contains around a 3% allocation holding of AAPL, compared to 19%/20% for the NDX). Here, it is interesting to note that going back to the start of August, both equal-weight indices have performed right inline with each other.  With these charts in mind, next time you hear someone moaning about how tech stocks are underperforming, it is probably safe to assume that they, like the Nasdaq 100, have a portfolio full of Apple. SPX Equalweight vs NDX Equalweight vs SPX Chart Courtesy of Bespoke