Tuesday, April 5, 2011

NASDAQ to Rebalance Nasdaq-100 to Rely Less on Apple (AAPL)

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Important news out if you trade one of the most popular ETFs in the market - QQQ (Powershares QQQ).  This ETF is essentially the high beta equivalent of the SPY, but for tech stocks.  Apple's (AAPL) incredible ascent over the past few years has put it in a dominant position in the NASDAQ 100 - this one stock had taken a weighting of 20.5% of the ETF, leaving the rest for the other 99 companies.  NASDAQ is going to move this weighting down by 8.2% (along with 81 other stocks).  Meanwhile 19 will see an increase with the most prominent below:

Google (GOOG) +1.6%
Intel (INTC) +2.4%
Microsoft (MSFT) +4.9%
Oracle (ORCL) +3.4%



While better for diversification reasons, I don't think the trading community will like this because aside from Oracle, the other names have been non performers for quite a while.  I do wonder if this news was leaked as discussions took place the past few weeks, as Apple (AAPL) has been down 5 of the past 6 sessions; sharply so the past two.



Via WSJ:
  • In a move likely to ripple across the stock market, Nasdaq OMX plans to announce Tuesday a rare rebalancing of its Nasdaq-100 index, which will reduce the big weighting of Apple Inc. The company currently makes up more than 20% of the index.
  • The rebalancing was driven in part by the seemingly unstoppable rise in Apple shares, which are up more than fourfold in the past two years. The tech company's big weighting means that a change in fortune for the maker of iPhones, iPods and iPads has a huge impact on one of the most heavily traded indexes in the market. After the rebalancing, which takes effect May 2, Apple will make up 12% of the Nasdaq-100.
  • The Nasdaq-100 consists of the 100 largest nonfinancial stocks that trade on the Nasdaq and is the index tracked by the heavily traded QQQ exchange-traded fund and many other securities. The move matters to investors because more than $330 billion worth of assets track the index via exchange-traded funds, mutual funds, options and futures
  • The move could mean significant selling pressure on Apple shares by money managers tracking the index. Because of the way the index has been calculated, Apple was given more than twice the weight in the index than it should have had based on its number of shares. Under the new plan, it will be reduced to the weight it should have given its size.
  • Apple's market capitalization is roughly $300 billion, twice that of Google. But its weighting in the index was five times that of Google. After the rebalancing, Google's share of the index will be 5.8% compared to Apple's 12.3%.
  • In addition to Apple, 81 other stocks will see their share of the index reduced. The remaining 18 stocks will get a boost in the index. Among the biggest beneficiaries will be Microsoft Corp., whose weighting in the index was reduced in the only other special rebalancing of the index 13 years ago. Microsoft will see its weighting boosted to 8.3% from 3.4%.
  • There are more than 2,900 financial products tracking the Nasdaq-100 in 27 countries, Nasdaq says. That includes the $24.4 billion PowerShares QQQ exchange-traded fund, which over the past year has been the sixth most actively traded stock on U.S. exchanges.

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