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The Nasdaq 100, one of the most prominent stock market indices representing the 100 largest non-financial Nasdaq components, is set to undergo a special rebalance on Jul 24. The move comes in response to the growing dominance of a few technology stocks, referred to as the "Magnificent Seven," which have become disproportionately large within the index (read: Nasdaq Celebrates Best First Half in 40 Years: ETFs in Focus).
The special rebalance will address overconcentration issues posed by a handful of technology stocks on the index by redistributing the weights. This rebalance seeks to maintain the index's diversification and ensure that it accurately represents the broader technology sector. It will not result in the removal or addition of any securities. This shake-up will be the third special rebalance in its history after May 2011 and December 1998.
The special rebalance will spur stock allocation shifts among ETFs that track the Nasdaq 100 Index. These include Invesco QQQ (QQQ - Free Report) , Invesco NASDAQ 100 ETF (QQQM - Free Report) , First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW - Free Report) and Direxion NASDAQ-100 Equal Weighted Index Shares (QQQE - Free Report) .
Current Index Weightings
The seven-largest companies in the Nasdaq 100 currently account for nearly 55% of the index. As of July 10, Microsoft (MSFT) stock has the largest weight at 12.7%, followed by Apple (AAPL) at 12.3%. Nvidia (NVDA) and Amazon (AMZN) account for nearly 7% each, while Tesla (TSLA) and Meta Platforms (META) hold about 4.4% share each. Alphabet has a 7.2% weighting with GOOGL and GOOG share classes combined.
The AI-frenzy has led to huge rallies in these top six tech companies, resulting in a huge overconcentration. Together, the “magnificent seven” has added $3.6 trillion in market cap, according to Ben Bakkum, lead investing researcher at JP Morgan.
How Will New Index Look Like?
As per the Nasdaq 100 methodology, the total weight of the top five companies by market capitalization will be adjusted to 38.5%, indicating a reduction from the current combined weight of 55%. This implies that these companies, namely Apple, Microsoft, Google, Amazon, and Nvidia, are expected to experience decreased weightings within the index (read: Can Nasdaq ETFs Maintain Their Awesome 1H Rally in 2H?).
Further, it is important to note that no constituent outside the top five market-cap companies can have a Nasdaq 100 weight exceeding either 4.4% or the weight of the stock with the fifth-largest market valuation, whichever is lower. This suggests that the weight of Tesla stock is likely to experience at least a slight decline.
According to an analysis from Wells Fargo & Co, Mondelez, Booking Holdings, Gilead Sciences, Intuitive Surgical, Analog Devices and Automatic Data Processing are expected to see their weight increase in the Nasdaq 100 Index.
Invesco QQQ provides exposure to the 101 largest domestic and international non-financial companies listed on the Nasdaq by tracking the Nasdaq 100 Index. It is one of the largest and most popular ETFs in the large-cap space, with an AUM of $202.2 billion and an average daily volume of 47 million shares. Invesco QQQ charges investors 20 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Equity ETFs Attract Investors Amid Market Downturn Last Week).
Invesco NASDAQ 100 ETF is identical to QQQ tracking the NASDAQ-100 Index but comes with lower annual fees of 15 bps. It holds 102 securities in its basket. NASDAQ 100 ETF has accumulated $13.6 billion in its asset base and trades in an average daily volume of 953000 shares. It has a Zacks ETF Rank #2.
First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW - Free Report)
Holding 101 stocks, First Trust NASDAQ-100 Equal Weighted Index Fund provides equal exposure to stocks on the Nasdaq-100 Equal Weighted Index. It has amassed $1.8 billion in its asset base, while trading in moderate volumes of 162,000 shares a day, on average. First Trust NASDAQ-100 Equal Weighted Index Fund charges 58 bps in annual fees and carries a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
Direxion NASDAQ-100 Equal Weighted Index Shares (QQQE - Free Report)
Direxion NASDAQ-100 Equal Weighted Index Shares provides an equal-weight exposure to the NASDAQ-100 Index by tracking the NASDAQ-100 Equal Weighted TR Index. It has amassed $777.9 million and trades in an average daily volume of 215,000 shares. Direxion NASDAQ-100 Equal Weighted Index Shares charges 35 bps in annual fees and has a Zacks ETF Rank #3.
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ETFs in Focus as Nasdaq 100 Undergoes Rejiggering
The Nasdaq 100, one of the most prominent stock market indices representing the 100 largest non-financial Nasdaq components, is set to undergo a special rebalance on Jul 24. The move comes in response to the growing dominance of a few technology stocks, referred to as the "Magnificent Seven," which have become disproportionately large within the index (read: Nasdaq Celebrates Best First Half in 40 Years: ETFs in Focus).
The special rebalance will address overconcentration issues posed by a handful of technology stocks on the index by redistributing the weights. This rebalance seeks to maintain the index's diversification and ensure that it accurately represents the broader technology sector. It will not result in the removal or addition of any securities. This shake-up will be the third special rebalance in its history after May 2011 and December 1998.
The special rebalance will spur stock allocation shifts among ETFs that track the Nasdaq 100 Index. These include Invesco QQQ (QQQ - Free Report) , Invesco NASDAQ 100 ETF (QQQM - Free Report) , First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW - Free Report) and Direxion NASDAQ-100 Equal Weighted Index Shares (QQQE - Free Report) .
Current Index Weightings
The seven-largest companies in the Nasdaq 100 currently account for nearly 55% of the index. As of July 10, Microsoft (MSFT) stock has the largest weight at 12.7%, followed by Apple (AAPL) at 12.3%. Nvidia (NVDA) and Amazon (AMZN) account for nearly 7% each, while Tesla (TSLA) and Meta Platforms (META) hold about 4.4% share each. Alphabet has a 7.2% weighting with GOOGL and GOOG share classes combined.
The AI-frenzy has led to huge rallies in these top six tech companies, resulting in a huge overconcentration. Together, the “magnificent seven” has added $3.6 trillion in market cap, according to Ben Bakkum, lead investing researcher at JP Morgan.
How Will New Index Look Like?
As per the Nasdaq 100 methodology, the total weight of the top five companies by market capitalization will be adjusted to 38.5%, indicating a reduction from the current combined weight of 55%. This implies that these companies, namely Apple, Microsoft, Google, Amazon, and Nvidia, are expected to experience decreased weightings within the index (read: Can Nasdaq ETFs Maintain Their Awesome 1H Rally in 2H?).
Further, it is important to note that no constituent outside the top five market-cap companies can have a Nasdaq 100 weight exceeding either 4.4% or the weight of the stock with the fifth-largest market valuation, whichever is lower. This suggests that the weight of Tesla stock is likely to experience at least a slight decline.
According to an analysis from Wells Fargo & Co, Mondelez, Booking Holdings, Gilead Sciences, Intuitive Surgical, Analog Devices and Automatic Data Processing are expected to see their weight increase in the Nasdaq 100 Index.
ETFs in the Spotlight
Invesco QQQ (QQQ - Free Report)
Invesco QQQ provides exposure to the 101 largest domestic and international non-financial companies listed on the Nasdaq by tracking the Nasdaq 100 Index. It is one of the largest and most popular ETFs in the large-cap space, with an AUM of $202.2 billion and an average daily volume of 47 million shares. Invesco QQQ charges investors 20 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Equity ETFs Attract Investors Amid Market Downturn Last Week).
Invesco NASDAQ 100 ETF (QQQM - Free Report)
Invesco NASDAQ 100 ETF is identical to QQQ tracking the NASDAQ-100 Index but comes with lower annual fees of 15 bps. It holds 102 securities in its basket. NASDAQ 100 ETF has accumulated $13.6 billion in its asset base and trades in an average daily volume of 953000 shares. It has a Zacks ETF Rank #2.
First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW - Free Report)
Holding 101 stocks, First Trust NASDAQ-100 Equal Weighted Index Fund provides equal exposure to stocks on the Nasdaq-100 Equal Weighted Index. It has amassed $1.8 billion in its asset base, while trading in moderate volumes of 162,000 shares a day, on average. First Trust NASDAQ-100 Equal Weighted Index Fund charges 58 bps in annual fees and carries a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
Direxion NASDAQ-100 Equal Weighted Index Shares (QQQE - Free Report)
Direxion NASDAQ-100 Equal Weighted Index Shares provides an equal-weight exposure to the NASDAQ-100 Index by tracking the NASDAQ-100 Equal Weighted TR Index. It has amassed $777.9 million and trades in an average daily volume of 215,000 shares. Direxion NASDAQ-100 Equal Weighted Index Shares charges 35 bps in annual fees and has a Zacks ETF Rank #3.