I was reading over on IndexUniverse that “NYSE Arca Tech 100 ETF Offers Challenge To QQQQ”.

I really don’t know what the author was thinking. The NYSE Arca Tech 100 (NXT) is the old Pacific Exchange 100 Index. That is not the only thing old about the NYSE Arca Tech 100.

The index is price weighted, NOT by capitalization. That means smaller stocks make up a larger percentage of the index. This may not seem like a problem, until you try some sort of hedge where you need to buy all the stocks in the index. Buying a price weighted index , well acts more like a benchmark than a trading vehicle. This is something that I think I could write condors on a day.

Now the NXT is tax efficient, but carries a higher expense ration than others. Now it is a “Lower Expense ratio compared to the average actively managed mutual fund” as claimed on the http://www.nxt100.com/ website. Isn’t one of the reasons we buy ETF’s instead of mutual funds is the supposed lower expense ratio.

The only reason I can see this thing is as a benchmark. Maybe something you want to buy as a proxy for a diversified tech portfolio. But diversification alone does not make up for the fact that this ETF is just like all the others with a higher expense ratio. If you want the diversification, get spiders. If you want tech exposure, buy the QQQQ. I haven’t run the numbers, but I suspect the NXT is “a horse of an average color”.

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