Oracle (ORCL - Analyst Report) recently announced that the company would be leaving the Nasdaq and will be listed on the NYSE exchange instead. The move represents a big loss for Nasdaq, as Oracle is a key technology firm and one of the largest, most traded securities on the exchange.
By moving, Oracle will also be giving up its spot in the Nasdaq-100 index, the benchmark for the popular PowerShares QQQ ETF (QQQ - ETF report), as well as the equal-weight versions the First Trust Nasdaq 100 Equal Weighted Index Fund (QQEW - ETF report) and the Direxion NASDAQ-100 Equal Weighted Index Shares (QQQE - ETF report).
Currently, ORCL makes up roughly 4.3% of QQQ, enough to put it into fourth place in terms of biggest holdings in the ETF. The product also makes up about 1% in QQEW and QQQE, though its position in these funds is much more variable due to the equal weight nature of the products. Given this, the loss of ORCL looks to have a modest impact on both of these ETFs, as well as the risk reward profile of each product (also read The Apple Effect and Nasdaq ETFs).
What will replace ORCL?
It has been announced that a new replacement has been found for ORCL in the key benchmark; Tesla Motors (TSLA - Analyst Report). The company, thanks to its incredible surge this year, is now the biggest firm trading on the Nasdaq that isn’t in the Nasdaq-100 Index, making it the replacement pick.
The stock is now trading around the $123/share mark, an increase of roughly 240% since the start of 2013. This gives TSLA a valuation of just over $14.25 billion, making the company an easy choice to replace Oracle in the benchmark (see Three Great Tech ETFs that Avoid Apple).
The change will officially take place—in both the Nadsaq 100 Index and the Nasdaq 100 Equal Weighted Index—prior to the market opening on July 15th.
How will this impact Nasdaq 100 ETFs?
While it isn’t clear at this time how much Tesla will make up of the ETFs, we can speculate based on its current market cap, compared to other similarly-sized stocks. These securities include SanDisk (SNDK) and Netflix (NFLX), both of which receive about 0.4% in the ETF, suggesting that TSLA may receive a similar allocation. However, it is worth noting that this will likely change as ORCL’s rather large allocation gets divided up among the smaller components in the ETF.
Meanwhile, for the equal weight products, TSLA looks to take up about 1% of the assets in both cases (see Clean Energy ETFs: The Real Bull Market?).
Some changes are fast approaching for investors in any of the Nasdaq ETFs on the market today. One of the biggest companies in the cap weighted benchmark, ORCL, will no longer be a component leaving a tilt towards smaller cap securities likely. Equal weight Nasdaq ETFs will also see big changes as ORCL’s 1% allocation is swapped out for a 1% holding for TSLA (see Alternative ETF Weighting Methodologies 101).
Granted, none of these changes are enormous, but they do look to slightly shift the exposure profile for each of the Nasdaq ETFs going forward. Plus, the news could actually be good for TSLA as well, as it could lead to some forced ETF buying of the stock in order to get it up to its proper allocation in each of the three aforementioned funds (currently TSLA has a Zacks Rank #3- Hold).
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