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Making Sense of Relief?

A new Nasdaq index of bailed-out financial firms may appeal to short-term investors with a taste for volatility.
Josh Hyatt, CFO Magazine
March 1, 2009

Looking for a personal piece of the bailout pie? You now have a chance to partake of the government's bounty — indirectly, anyway. In January, Nasdaq OMX introduced its Government Relief Index (QGRI), bundling 21 equally weighted large caps that have received at least $1 billion in government aid, mostly through the Troubled Asset Relief Program (TARP). Options trading on the barons-of-bailout index began three weeks later, by which time shares had plunged about 35 percent. Not that anybody much expected the money infusion to jolt these businesses — mostly financial institutions — back to life. "Short-term, I assumed it wouldn't perform well," says John Jacobs, Nasdaq's executive vice president. "Nothing is."

But Jacobs says the volatility of the group may attract a following. "These companies are in the news every day, and that can appeal to those who want to invest in short-term movements," he says. Other bargain-hunters may view the index as a smart gamble because the government singled out these companies for shoring up. "As a taxpayer, these companies have already been the recipients of your money, so you might want to follow them," says Tom Sowanick, chief investment officer at Clearbrook Financial. Follow them, yes, but maybe not invest in them. In Sowanick's view, the index "has been a stinker from the get-go."

But the idea of the index, that's another matter. Jacobs sees QGRI as the first of many bailout-inspired indexes. Others may track foreign counterparts or focus on specific troubled sectors. Unfortunately, the number of companies that could potentially populate such indexes is growing; in fact, shortly after unveiling QGRI, Jacobs added four more companies to it.

The performance of such indexes, he says, will have broad policy implications. But Wayne Marr, a business professor at the University of Alaska at Fairbanks, says the index may simply do what indexes are intended to do: offer a window into performance. And in this case, he says, the QGRI so far shows that "it's not clear that the government is any smarter than private-capital markets."


Some of the best-known members of the Government Relief Index:




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