We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Time for Equal-Weighed ETFs on Nasdaq's Special Rebalancing?
Read MoreHide Full Article
In a rare development driven by the mammoth rise of a few tech giants, Nasdaq is going for an adjustment to its widely followed growth index – Nasdaq-100. On Jul 7, 2023, Nasdaq has announced that it will conduct a special rebalance of the Nasdaq 100 Index, scheduled to take effect before the market opens on July 24. Nasdaq is set to announce the new weightings on July 14.
The Nasdaq 100 index consists of the top 100 nonfinancial companies listed on the exchange and is often seen as a measure for growth stocks. So far this year, the index has experienced an outstanding gain of about 39%, outdoing both the S&P 500 and the Dow Jones Industrial Average.
Special Rebalance to Correct Overconcentration
Last time, Nasdaq-100 special rebalances happened in 2011 and 1998, per Cameron Lilja, Global Head of Index Product and Operations at Nasdaq, quoted on CNBC. This time, Nasdaq stated that special rebalance is a tool designed to "address overconcentration in the index by redistributing the weights," as quoted on CNBC.
While the index is rebalanced quarterly, Nasdaq has a principle to keep the five biggest stocks' combined weighting below 40% during one designated annual adjustment. Current data from the holdings of the Invesco QQQ ETF indicates that these five top stocks have crossed this set limit.
The three heaviest weights — Microsoft (50.7%), Apple (up 44.8%), and Nvidia — account for more than 30% of the fund, with Nvidia’s stock price gaining 197.6% this year. Other two stocks that round out the top five positions are Amazon (up 50%) and Tesla (up 150.0%). Meanwhile, the top 10 holdings make up a combined weight about 59%.
Are Equal-Weighted Nasdaq ETFs Better Bets Now?
The rebalance provides an investing opportunity in well-diversified portfolio. As ETF (QQQ - Free Report) is no more likely to offer superb returns post diminishing the weights of AI-backed tech majors, equal-weighted Nasdaq ETFs may offer better prospects for returns. These ETFs include First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW - Free Report) and Direxion NASDAQ-100 Equal Weighted Index Shares (QQQE - Free Report) .
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Shutterstock
Time for Equal-Weighed ETFs on Nasdaq's Special Rebalancing?
In a rare development driven by the mammoth rise of a few tech giants, Nasdaq is going for an adjustment to its widely followed growth index – Nasdaq-100. On Jul 7, 2023, Nasdaq has announced that it will conduct a special rebalance of the Nasdaq 100 Index, scheduled to take effect before the market opens on July 24. Nasdaq is set to announce the new weightings on July 14.
The Nasdaq 100 index consists of the top 100 nonfinancial companies listed on the exchange and is often seen as a measure for growth stocks. So far this year, the index has experienced an outstanding gain of about 39%, outdoing both the S&P 500 and the Dow Jones Industrial Average.
Special Rebalance to Correct Overconcentration
Last time, Nasdaq-100 special rebalances happened in 2011 and 1998, per Cameron Lilja, Global Head of Index Product and Operations at Nasdaq, quoted on CNBC. This time, Nasdaq stated that special rebalance is a tool designed to "address overconcentration in the index by redistributing the weights," as quoted on CNBC.
While the index is rebalanced quarterly, Nasdaq has a principle to keep the five biggest stocks' combined weighting below 40% during one designated annual adjustment. Current data from the holdings of the Invesco QQQ ETF indicates that these five top stocks have crossed this set limit.
The three heaviest weights — Microsoft (50.7%), Apple (up 44.8%), and Nvidia — account for more than 30% of the fund, with Nvidia’s stock price gaining 197.6% this year. Other two stocks that round out the top five positions are Amazon (up 50%) and Tesla (up 150.0%). Meanwhile, the top 10 holdings make up a combined weight about 59%.
Are Equal-Weighted Nasdaq ETFs Better Bets Now?
The rebalance provides an investing opportunity in well-diversified portfolio. As ETF (QQQ - Free Report) is no more likely to offer superb returns post diminishing the weights of AI-backed tech majors, equal-weighted Nasdaq ETFs may offer better prospects for returns. These ETFs include First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW - Free Report) and Direxion NASDAQ-100 Equal Weighted Index Shares (QQQE - Free Report) .