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Nyquist Small/Mid Cap Index Rebalancing

The Nyquist Small/Mid Cap Index benchmarks the performance of carrier networking oriented companies under $5B in market capitalization. The construction and re-balancing of the index are based on the rules of the Russell 2000 and other Russell indexes, and as such the index is re-balanced at the end of May. Let’s examine the changes.

As a refresher, the Nyquist Index is composed of the 30 largest stocks under $5B market capitalization, selected from a pool of companies in the carrier component, equipment, and wholesale carrier sector. A full description of historical performance, index composition, and index rules can be found on the index home page. The actual index re-balance will not take place until June 27th but the composition is now determined.

Index Comments

The market cap cutoff this year was $365M. Index composition shifted up 7% towards equipment (58.2%) driven by the addition of multiple stocks in this area. Carriers and Components dropped to 12.6% and 29.1%.

The performance of the sector in the last 12 months is nothing short of abysmal. The Nyquist index declined 25% between May 31, 2007 and May 30, 2008. One of the reasons this index was created was to capture the wide fluctuation of this sector vs. the broad market indexes, and the last 12 months are a perfect justification.

  • Nyquist Small/Mid Cap -25.0%
  • Nasdaq Composite -2.1%
  • Dow Jones Ind. -7.5%
  • S&P500 -8.2%
  • Russell 2000 -9.9%
  • GSTI Networking Index -6.4%

There are a few distortions in the index for 2008. Sycamore continues to be over-represented as a result of it’s large cash balance- the enterprise value of the company is negligible. Opnext is similar. Conexant and XO Communications have substantial debt and an enterprise value that would place them solidly in the index. Nortel fell in this year, but would have been to large using the same criteria. No index is perfect.

Finally, Abovenet and Vitesse Semiconductor were not eligible due to a lack of up-to-date financials.

Index Additions

Everyone make a mental note- Nortel is no longer a big-cap stock. The steady erosion (destruction?) of value has made Nortel a mid-cap stock with a market cap of only $4B, making it eligible for inclusion in the Nyquist Index. A year prior Nortel’s market cap was $13B. Nortel becomes the largest component of the Nyquist Index with a 10.5% share.

  • Nortel
  • Emcore makes the cut this year due to a massive debt to equity conversion. 1.3% share
  • EZ-Chip clambered into 30th place with a market cap of $365M and the smallest share of the index at 0.9%
  • Infinera and Starent are two IPO’s than missed the window last year. Both are in the index for 2008 with 3.3% and 3.1% share respectively.

Entropic and Optium were other eligible IPOs but their market cap placed 31st and 32nd place.

Index Deletions

  • XO Communications
  • Conexant
  • Avanex
  • Oplink
  • MRV Communications.

There were no changes as a result of M&A activity. My gut tells me that won’t be the case next year.

Final Index Composition

Sector Symbol Market Cap % of Index
Equip_Net CSCO   160,587  
Equip_Net NOK   108,581  
Equip_Net ERIC     43,007  
Equip_Net MOT     21,058  
Equip_Net ALU     16,966  
Comp_Net BRCM     15,215  
Equip_Net JNPR     14,411  
Comp_Net MRVL     10,437  
Comp_Net XLNX      7,739  
Comp_Net ALTR      7,114  
Carrier_CLEC LVLT      5,289  
Equip_Net NT      4,104 10.52%
Comp_Opt JDSU      2,786 7.14%
Carrier_CLEC TWTC    &
#160;
2,745
7.04%
Equip_Net CIEN      2,656 6.81%
Equip_Net TLAB      2,219 5.69%
Equip_Net FDRY      2,002 5.13%
Comp_Net ATHR      1,969 5.05%
Comp_Net PMCS      1,872 4.80%
Equip_Net ADCT      1,851 4.75%
Equip_Net ADTN      1,608 4.12%
Equip_Net INFN      1,303 3.34%
Equip_Net ARRS      1,224 3.14%
Equip_Net STAR      1,204 3.09%
Equip_Net SONS      1,161 2.98%
Comp_Net CAVM      1,042 2.67%
Equip_Net COMS      1,008 2.59%
Carrier_CLEC GLBC         992 2.54%
Equip_Net SCMR         959 2.46%
Comp_Net NETL         802 2.06%
Carrier_CLEC CCOI         761 1.95%
Comp_Net AMCC         637 1.63%
Equip_Net UTSI         586 1.50%
Comp_Opt FNSR         568 1.46%
Equip_Net APKT         544 1.40%
Comp_Opt EMKR         507 1.30%
Carrier_CLEC RCNI         444 1.14%
Equip_Net EXTR         376 0.96%
Comp_Opt OPXT         375 0.96%
Comp_Net EZCH         364 0.93%
Equip_Net BBND         331 0.85%
Equip_Net ENTR         290  
Comp_Opt OPTM         280  
Equip_Net MRVC         280  
Comp_Opt AVNX         271  
Comp_Opt OPLK         229  
Comp_Net CNXT         227  
Comp_Opt BKHM         202  
Comp_Net ZL         112  
Comp_Net TXCC         112  
Carrier_CLEC XOHO         106  
Comp_Net IKAN         105  
Comp_Net MSPD           94  
Equip_Net OCNW           82  
Equip_Net SOAP           79  
Comp_Net HIFN           75  
Carrier_CLEC FTGX           72  
Comp_Net MTLK           42  
Comp_Net CTLM           33  
Carrier_CLEC ABVT  n/a   
Comp_Net VTSS  n/a   

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