Title: Nasdaq 100 Implements New Weightings for Largest Stocks with Second “Special Rebalancing” in 25 Years
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The Nasdaq 100 index has undergone a significant rebalancing, marking only the second instance in its 25-year history. The changes come into effect on Monday, attracting attention and generating buzz among investors. The amended weightings for the largest stocks were previewed by Goldman Sachs Group Chief U.S. Equity Analyst David Kostin, who published a report outlining the modifications and shared it with Goldman clients and the press.
Outlined below are four key shifts highlighted in Kostin’s report:
1. Collective weight reduction for seven stocks: The seven stocks with the heaviest weightings in the Nasdaq 100 will witness a decrease in their combined weight from 56% to 44%.
2. Decline in the information technology sector’s weight: Although the information technology sector will remain approximately half of the index, its weight will decrease from 51% to 49%.
3. Apple Inc. and Microsoft Corp. remain dominant: Apple Inc. and Microsoft Corp. will retain their positions as the index’s largest constituents, but their weights will be reduced by approximately four percentage points. Apple’s weight will decline to 12%, while Microsoft’s weight will decrease to 10%.
4. Increase in Broadcom’s index weight: The index weight for Broadcom is experiencing the most significant increase, with a boost of 64 basis points to reach 3%.
According to Nasdaq representatives, the Nasdaq 100 index is the most popular among the exchange’s indexes. Throughout this year, it has outperformed the broader Nasdaq Composite index, which includes every company traded on the exchange. FactSet data reveals that the Nasdaq 100 has risen by 41.2%, compared to the Nasdaq Composite’s 34.4%. Moreover, EPFR data indicates that $261 billion in mutual fund and exchange-traded fund assets are benchmarked to the Nasdaq 100. Of this amount, over $250 billion is invested in passive benchmark-tracking strategies.
The decision to implement a special rebalancing stemmed from the desire to mitigate concentration risk after the surge of the seven largest components of the index earlier this year. Nasdaq employs an official index-management methodology aiming to keep the combined weightings of its largest constituents at 40%.
Kostin suggests that these changes are unlikely to have a significant impact on the markets, as the previous special rebalancing also had minimal effect. Nonetheless, both the Nasdaq 100 and Nasdaq Composite were slightly lower on Monday, with big-tech names continuing to lag behind the S&P 500 and the suddenly high-performing Dow Jones Industrial Average. Nasdaq 100-tracking QQQ was down 0.2% at $374 per share, while the Nasdaq Composite declined 0.2% to 14,013.
In conclusion, the Nasdaq 100’s implementation of new weightings for its largest stocks has garnered attention as it undertakes its second “special rebalancing” in a quarter of a century. While the outcome remains to be seen, analysts predict minimal market impact.