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Nyquist Small/Mid Cap Index

We’ve struggled to identify a good index to judge the relative performance of equities in our area of expertise: carrier-oriented networking components, equipment and wholesale carriers. Lacking any good alternatives, we built one ourselves – the Nyquist Small/Mid Cap Networking Index.

Companies in the carrier networking sector experience large stock price fluctuations due to rapid shift in investor sentiment and the cyclical nature of the underlying business. This makes it difficult to distinguish individual company performance from sector performance by using broad market indexes. It also makes it difficult to identify companies outperforming or underperforming their industry.

The existing indexes such as the NASDAQ, Russell 2000, and the SOXX (Phil. Semiconductor Index) do a poor job of representing the volatile nature of small and mid cap companies in the carrier supply chain vertical. The closest alternative (until now) was the Goldman Sachs GSTI Networking Index (iShares IGN), which has a heavy consumer component (Qualcomm, Motorola, RIM, Corning), uneven weighting, and a strong large-cap bias.

The Nyquist Small/Mid Cap Networking Index captures the performance of the 30 largest carrier networking oriented companies under $5B in market capitalization. It draws from a pool of companies including networking components (silicon and optical), carrier-oriented equipment, and wholesale fiber carriers. The construction and re-balancing of the index are based on the rules of the Russell 2000 and other Russell indexes.

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We believe this index provides a useful tool for companies operating and in this sector by allowing them to evaluate their short and long term performance against a group of peers, suppliers, and customers. It is also a valuable benchmark for individual and institutional investors looking to put their own performance in this sector in context. It is not a recommended portfolio nor should it be considered investment advice.

Going forward, we will use this index as a backdrop for evaluating quarterly performance of companies in the sector. It provides a good quantitative metric to identify the relative performance of companies in our core area.

Daily and Historical performance, index composition, and details on the methodology are available on the new permanent link on the right-hand side of the home page, or at the link below.

Nyquist Small/Mid Cap Networking index

Future enhancements for Nyquist subscribers are underway and will be announced when complete. Users will have access to historical performance data and dynamically chart performance of one or multiple equities against the index. Please continue to provide feedback on tools and performance metrics you believe are useful.

Discussion

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  1. No Sycamore? Booo!

    Posted by Thomas | April 10, 2008, 7:28 PM
  2. SCMR is in the index, around 3.5%. If anything it is over-represented because it’s market cap is inflated by the large cash balance it holds. It is clearly not a 3.5% influence on the industry, but hey, can’t fight the algorithm.

    We strongly toyed with the idea of using Enterprise Value rather than Market Cap for this very reason but in the end that opened up even more questions. It was better to stick with a conventional approach that is well understood.

    Posted by Andrew Schmitt | April 10, 2008, 9:22 PM
  3. Oops, sorry. See it now. It may be over rep’d from a market value perspective, but it’s the fluctuations you really care about. And frankly it hasn’t done much anyways lately. Besides, if you think EV is hard for networking try a financial index — especially these days!

    Posted by Thomas | April 21, 2008, 2:27 PM