Nasdaq is making unique changes to its well-liked growth index as a result of the year’s quick ascent of a few already-massive tech businesses.
The Nasdaq 100 Index will undergo a special rebalancing, which the firm announced on July 7 and would take place prior to the market’s opening on July 24.
The Nasdaq 100 index, which is frequently used as a stand-in for growth stocks, consists of 100 of the biggest nonfinancial businesses that trade on the exchange. When compared to the S&P 500 and the Dow Jones Industrial Average, the index has increased by around 37% so far this year.
A specific rebalancing can be employed, according to Nasdaq, 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 maintain 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 now look to be over that line.
The holdings of the QQQ demonstrate how crowded the index has grown. Given that Nvidia’s stock price has nearly quadrupled this year, the three largest positions—Microsoft, Apple, and Nvidia—account for more than 30% of the fund as a whole. The total weighting of the top 10 holdings is about 59%.
The Nasdaq 100 has undergone a special rebalancing three times in total. The business stated that fresh weightings would be announced on July 14.
The Nasdaq-100 methodology includes a particular rebalancing step that makes sure index-tracking funds continue to adhere to fund diversification regulations. Prior Nasdaq-100 special rebalances occurred in 2011 and 1998, according to Cameron Lilja, global head of Nasdaq’s index product and operations.
The QQQ, an index fund with over $200 billion in assets under management, is one of many that follow the Nasdaq 100.