New weightings for the largest stocks in the Nasdaq 100 come into force on Monday after the index’s second “special rebalancing” in 25 years.
See: Nasdaq rebalancing is coming, and that is increasing interest in Friday’s $2.3 trillion option expiration
These new levels were shared in advance with Goldman Sachs Group Chief US Equity Analyst David Kostin. Kostin and his team have published a report on the changes that was shared with Goldman clients and the press last week.
Here are four of the most important changes highlighted in Kostin’s note:
The seven stocks with the heaviest weightings in the Nasdaq 1[ads1]00 have their combined weight reduced to 44% from 56%.
At the sector level, information technology will still make up about half of the index, but the sector’s weight will decrease to 49% from 51%.
Apple Inc. AAPL,
and Microsoft Corp. MSFT,
will remain the index’s largest constituents, but their index weights will be reduced by approximately four percentage points — to 12% and 10% respectively.
Broadcom’s index weight has the largest increase, and will see its weight increase by 64 basis points to 3%.
The Goldman analyst summarized how the new weightings would affect the index’s 25 largest constituents in the chart below.
According to Nasdaq representatives, the Nasdaq 100 is the most popular of the stock exchange’s indices. So far this year, it has outperformed the Nasdaq Composite, a broader index that includes all companies traded on the stock exchange. The Nasdaq 100 is up 41.2%, to the Composite’s 34.4%, according to FactSet data.
EPFR data shows that $261 billion in mutual funds and exchange-traded fund assets are benchmarked to the Nasdaq 100, including the Invesco QQQ Trust Series QQQ,
better known by its ticker QQQ. More than $250 billion of that money is invested in passive benchmark-tracking strategies.
Nasdaq decided to implement the special rebalancing earlier this month to try to ward off concentration risk after its seven largest components surged earlier this year. According to the official index management method, Nasdaq aims to keep the aggregate weighting of the largest constituents at 40%.
Kostin said he doesn’t expect these changes to have much of an impact on markets, arguing that the previous special rebalancing didn’t move the index much either.
Both the Nasdaq 100 and Nasdaq Composite were slightly lower on Monday as big tech names continued to lag behind the S&P 500 and suddenly high-flying Dow Jones Industrial Average DJIA,
just like they did last week.
Nasdaq 100 Tracking QQQ QQQ,
was down 0.2% at $374 a share Monday morning, while the Nasdaq Composite COMP,
was down 0.2% at 14,013.