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Time for Equal-Weighed ETFs on Nasdaq's Special Rebalancing?
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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) .
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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) .