SAN FRANCISCO -- Barclays Global Investors has launched what might be the first of its kind -- a commingled trust index fund that invests in the Nasdaq 100 index.
The BGI fund, which will be available only to the defined contribution market, is available to plan sponsors and currently has about $30 million in assets. BGI might launch a similar product for individual investors later this year.
In the Pensions & Investments' Performance Evaluation Report universe of commingled funds, there currently are no Nasdaq 100 funds, and among all funds tracked by Morningstar Inc., Chicago, there are just a few that invest in this volatile index, which comprises mostly technology stocks.
While the Nasdaq 100 finished up 99.4% for the year in 1999, it's up just 6% through August 25.
Mark Roemer, U.S. equity product manager at BGI, said the Nasdaq 100 commingled fund was developed after plan sponsors and other institutional investors approached BGI about creating such a fund.
One firm that added the BGI Nasdaq 100 fund to its portfolio is The Pentegra Group, a White Plains, N.Y.-based defined contribution plan administrator with $1 billion in assets and 18,000 plan participants from 425 community banks nationwide.
Spurred by plan sponsors
Michael Reynolds, Pentegra Group president, said plan participants spurred the firm's interest in the fund. "We've been getting a lot of requests from our plan participants to add a Nasdaq 100 fund," said Mr. Reynolds. "To meet the needs of the participants, we felt we had to put it in another asset allocation vehicle," joining the Pentegra menu of 14 other funds.
The strong performance of the Nasdaq in recent years is a driving force behind the interest in the product, and the market's April slide did not deter participants, said Mr. Reynolds. "They recognize that they can be in for some ups and downs, but they're looking at it from a long-term perspective," he said.
Mr. Roemer said the fund also allows plan sponsors and administrators to diversify their offerings. "A number of plan sponsors have participants that are very heavily invested in their own company stock," he said. Particularly for participants from larger, technology-oriented companies, the Nasdaq 100 fund "would almost be a diversifying tool for them."
Mr. Roemer sees the Nasdaq 100 fund as "definitely a niche product" in a defined contribution plan. For those who want exposure to the technology sector, Mr. Roemer sees it playing a role similar to that of an actively managed aggressive growth fund but with two key differences -- cost and risk, particularly in a volatile market. While an index fund generally carries lower fees, an actively managed fund could mitigate risk in a declining market. "You have to believe an active manager will add value in security selection," Mr. Roemer said.
Roxanne Fleszar, principal at Financial Resources Management Corp., a defined contribution plan consulting firm in Peabody, Mass., has seen plan sponsor interest in technology funds, but hasn't had a lot of requests for the Nasdaq 100 or any other index funds as an aggressive growth option. Ms. Fleszar said she would rather see plan sponsors use a small-cap growth fund with "a seasoned portfolio manager who has the capability to move within sectors."
For participants willing to sustain the volatility, Ms. Fleszar said she didn't see anything wrong with putting a portion of assets in a Nasdaq index fund, but "in an aggressive kind of posture, you're better off having active management."
Ms. Fleszar said a Nasdaq index fund is another example of broader defined contribution plan options being offered. "More styles of funds are being added to allow participants to do better asset allocation," she said.
Other new additions
In addition to the Nasdaq 100 fund, BGI plans to launch a quantitative small-cap growth fund benchmarked to the Russell 2000 index, said Mr. Roemer. The new fund, which could be available by the end of the year, also will be available initially to the defined contribution market only. Mr. Roemer said the BGI small-cap growth fund will strive for outperformance "without taking on as significant levels of active risk."
Adding to the short list of Nasdaq 100 funds is the Victory Nasdaq-100 Index Fund, which launched last week.
The fund, which will have institutional shares, will be available to both individual and defined contribution investors, said Robin Schosser, director at Key Asset Management Corp., Cleveland.
The new fund, the 33rd in the Victory family of funds, provides technology sector access for investors who have identified the need for a more aggressive growth component, Ms. Schosser. As the first technology-oriented fund in the family, it also helps round out the set.
She said there aren't that many Nasdaq 100 funds on the market to date because a lot of other fund families have actively managed specialty technology funds.
With a majority of assets in core value strategies, Ms. Schosser said the Nasdaq 100 fund, which has about 75% technology and thus may be more diversified than many pure technology funds, is more in line with the firm's philosophy.