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| Broker/Dealer Index (XBD) |
Overview:
The AMEX Securities Broker/Dealer Index (XBD) is the most widely recognized
indicator for the brokerage industry. The index was started on October 15, 1993
with an initial value of 300, or 15 after adjusting for numerous splits over the
years.
Composition:
The Broker/Dealer Index is comprised of 12 of the most widely known firms in the
brokerage sector. It is one of the few indices that is equal-dollar weighted,
meaning that each stock accounts for an equal percentage of the index.
Therefore, no single firm cannot dominate the index’s value. It is rebalanced
quarterly to keep its continuity.
The table below lists the components of the
Broker/Dealer Index along with the weighting that each stock carries in the
index (data as of August 2004):
| Company |
Symbol |
%
of Index |
| E*Trade Financial |
ET |
8.9% |
| Ameritrade Holding |
AMTD |
8.9% |
| Jefferies Group |
JEF |
8.9% |
| Charles Schwab |
SCH |
8.5% |
| Lehman Bros. |
LEH |
8.4% |
| Morgan Stanley |
MWD |
8.3% |
| Bear Stearns |
BSC |
8.2% |
| AG Edwards |
AGE |
8.2% |
| Merrill Lynch |
MER |
8.1% |
| Goldman Sachs |
GS |
8.0% |
| Raymond James |
RJF |
7.9% |
| Legg Mason |
LM |
7.7% |
Positives:
The XBD provides an easy-to-understand snapshot of the brokerage industry as a
whole. Because the index contains virtually all of the well-known names in the
sector, it gives a relatively fair representation of the group.
Drawbacks:
As noted earlier, the Broker/Dealer Index is equal-dollar weighted, which can
distort the true returns of the sector as a whole. Many investors do not feel
that it is appropriate to have an index where the largest and smallest firms
have an equal impact on the index's value. After all, this does not truly
reflect the industry's performance in the real world.
How can I trade/invest in this index?
Although you can track the performance of the financial services industry via a
variety of options, futures, ETFs and funds, there is no great way to trade the
Broker/Dealer Index. In fact, using data from the past, one of the best ways to
track this index has been to hold only two stocks--Goldman Sachs (GS) and
Merrill Lynch (MER). Because this is not a very diversified technique, we
believe the best way to effectively add the Broker/Dealer Index to your
portfolio is to use options or futures on XBD itself.
Additional Information:
AMEX
Broker/Dealer Index (XBD)
AMEX
XBD Option Specifications
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