Philadelphia Semiconductor Index (SOX)
What it is:
The Philadelphia Semiconductor Index, or SOX, is an index created by and traded on the Philadelphia Stock Exchange. It was introduced on December 1, 1993 with a split-adjusted value of 100. The SOX is the most widely recognized index that investors use to track the performance of semiconductor makers and equipment manufacturers.
How it works/Example:
Because it tracks the cyclical semiconductor industry, it has been a very volatile over the years.
The Semiconductor is comprised of 19 stocks that almost fully represent the semiconductor industry. The includes firms that manufacture semiconductors and some that produce semiconductor equipment. It is a price-weighted , meaning that firms with higher stock prices have greater influence on the . Because of this, some of the fund's largest components, such as Intel (INTC), are weighted towards the middle of the and not at the top.
Why it matters:
The Philadelphia Semiconductor market. As such, the Semiconductor can serve as a fairly accurate leading indicator for technology stocks.
Many investors have a problem with price-weighted indices because they may not reflect the true makeup of the sector they cover. While it is true that a market-cap weighting would more accurately reflect the industry's overall performance, it wouldn't necessarily be perfect. For example, if this weighting were followed, Intel alone would consist of over 20% of the .This would mean that the Semiconductor would basically track Intel and a few other stocks--it would not be very diverse.