Nasdaq 100 to undergo rejiggering because few tech stocks now too big

The speedy rise of some already-massive tech shares this yr is inflicting Nasdaq to make uncommon changes to its widespread progress index.

The corporate introduced July 7 that it’s going to do a particular rebalance of the Nasdaq 100 Index, which can take impact earlier than the market opens July 24.

The Nasdaq 100 index includes 100 of the biggest nonfinancial corporations that commerce on the alternate and is commonly seen as a proxy for progress shares. The index has surged about 37% yr to this point, effectively above the S&P 500 and the Dow Jones Industrial Common.

Nasdaq stated a particular rebalance can be utilized to “tackle overconcentration within the index by redistributing the weights.”

Whereas the index is already rebalanced on a quarterly foundation, Nasdaq tries to maintain the 5 greatest shares beneath a 40% mixed weighting in a single rebalance per yr designated because the annual adjustment, based on the agency’s methodology. The 5 greatest shares look like over that threshold at present, based on the holdings of the Invesco QQQ ETF, which tracks the index.

The QQQ’s holdings present how concentrated the index has change into. The three largest positions — Microsoft, Apple and Nvidia — account for greater than 30% of the fund mixed, as Nvidia’s inventory worth has almost tripled this yr. The highest 10 holdings account for a mixed weighting of almost 59%.

That is the third particular rebalance on report for the Nasdaq 100. The corporate stated it is going to announce new weightings July 14.

“The particular rebalance is a part of the Nasdaq-100 methodology and ensures that index-tracking funds keep compliance with fund diversification guidelines. Nasdaq-100 particular rebalances have taken place beforehand in 2011 and 1998,” Cameron Lilja, world head of index product and operations at Nasdaq, stated in a press release.

There are a number of index funds that monitor the Nasdaq 100, together with the QQQ, which has about $200 billion in belongings underneath administration.