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Nasdaq's Wild Ride: Volatility's OK, Say Fund Managers

Man on Coin Stack

Investors should not be surprised by the Nasdaq's wild gyrations, say index fund managers. Nor should they be overly concerned.

"We know the Nasdaq is a more volatile index than the S&P 500," says Gary Rodmaker, portfolio manager and managing director of Summit Mutual Funds' index fund group. "Historically there has been higher volatility and higher return."

                Nasdaq  12 Month Performance: Bullish but Volatile

"It would be ludicrous to expect 50% return annualized for the next 20 years," he said. "People have gotten spoiled by the S&P 500 returning 25% or so over the last 5 years and by the Nasdaq returning 50% over the last five years." Last week Summit added the Nasdaq 100 Index Fund (888-259-7565) to its fund group.

"If someone went on TV a year and a half ago and said the Nasdaq is going up to 4,800 you would have thought they were a lunatic," he said. "We couldn't have dreamed that the Nasdaq would take off like it did."

Doug Rogers, Executive Vice President at Ranson & Associates, which launched its Nasdaq 100 Index Fund in December, said his firm has seen sales soar on some of the most volatile days. "People are still buying on dips," he said.  He believes investor support is broad based and long-term oriented. Last week may have started with heavy selling, but it ended on a bullish note as the composite soared 4.2% to 4,446 in its biggest point gain ever.

"Certainly there was a trigger with Microsoft but prior to that there was a lot of interest in technology and people were waiting for prices to come back down and they did," he said.

"The laws of fundamentals still hold true but the bigger question is when do rewards show up?" he said. " Is it 6 months, one year or 3 years?"

David M. Weisenburger, assistant portfolio manager for Summit's index funds, added that "over a long period of time even if these stocks have a high valuation today, they will likely have a much higher valuation 20 to 30 years from now."

"This is the new Nifty Fifty, if you will," he said in reference to the high flyers of the 1960's such as IBM that seemed expensive at the time but kept climbing in value for decades. "These are the foundation upon which the new economy is being built."

"A lot of people talk about the [high] valuations," said Summit's Rodmaker. We don't have a really strong opinion of valuations. That is not our job. Our job is to build a great index."