This year, a few of already-massive tech stocks have experienced a quick surge, causing Nasdaq to make extraordinary changes to its well-liked growth index. The company announced July 7 that it will undergo a special rebalance of the Nasdaq 100 Index, which will go into effect before the market opens on July 24. The Nasdaq …
This year, a few of already-massive tech stocks have experienced a quick surge, causing Nasdaq to make extraordinary changes to its well-liked growth index. The company announced July 7 that it will undergo a special rebalance of the Nasdaq 100 Index, which will go into effect before the market opens on July 24. The Nasdaq 100 index, which includes 100 of the biggest nonfinancial companies traded on the exchange, is sometimes used as a stand-in for growth stocks. The index has increased by roughly 37% so far this year, outpacing both the S&P 500 and the Dow Jones Industrial Average.
According to Nasdaq, a specific rebalancing can be used to “address overconcentration in the index by redistributing the weights.” Despite the fact that the index is already rebalanced on a quarterly basis, Nasdaq uses its yearly adjustment rebalance to try to keep the total weight of the five largest firms below 40%. The holdings of the Invesco QQQ ETF, which tracks the index, show that the five largest stocks currently appear to be over that threshold. The QQQ’s holdings demonstrate how concentrated the index has become. As Nvidia’s stock price has nearly tripled this year, the three largest positions—Microsoft, Apple, and Nvidia—account for more than 30% of the fund as a whole. The total weight of the top 10 holdings is around 59%. The Nasdaq 100 has undergone three special rebalancing in total.
The company stated that fresh weightings would be released on July 14. “The special rebalancing, which is a component of the Nasdaq-100 methodology, guarantees that index-tracking funds continue to adhere to the fund diversification criteria. Nasdaq-100 special rebalances have taken place previously in 2011 and 1998,” Cameron Lilja, global head of index product and operations at Nasdaq, said in a statement. There are a number of index funds that follow the Nasdaq 100, including the QQQ, which has about $200 billion in assets under management.
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