The QQQ Rebalance Is Complete! Here's What The Nasdaq 100 ETF Looks Like Now
The "magnificent 7" mega-cap tech stocks all saw their allocations reduced in the reconstituted index.
Note: Good morning! As a special update, I wanted to update everyone on the outcome of the Nasdaq 100 index’s “special rebalance” that took place at the close of business yesterday. It won’t result in a major change to the index or likely its performance, but the fact that it’s rebalancing outside of its normal schedule is noteworthy enough. As always, feel free to drop any questions or thoughts in the comments down below. Enjoy!
The Nasdaq 100 completed its "special rebalance" after the close of the market on July 24th to address the overconcentration at the top of the index. I discussed the reasoning and potential impact of the change HERE.
The Nasdaq 100 index has been getting progressively more top-heavy for a while (as has the S&P 500), but that disparity really accelerated this year when the "magnificent 7" stocks - Apple, Microsoft, Amazon, Alphabet, NVIDIA, Tesla and Facebook - rallied hard during the AI mania period and were responsible for virtually all gains in the major indexes.
Two weeks ago, those 7 stocks accounted for 54% of the Nasdaq 100. The rebalance was needed to address two major issues with the index.
First, by mandate, the aggregate weight of the 5 largest market caps in the index could be no more than 38.5%. At the time, Apple, Microsoft, Amazon, NVIDIA and Alphabet totaled around 45%.
Second, there is also a limit of 4.4% of the index on individual components outside of the top 5. Tesla and Facebook were right near that 4.4% level, so they were likely to be impacted as well.
There is also an individual weighting max of 14%, but that was not an issue here.
The "New" Nasdaq 100
With the rebalance now complete, here's how the Nasdaq 100 looked before and how it looks now.
The biggest haircuts occurred in Microsoft and NVIDIA, which lost nearly 3% each. Microsoft, which was the biggest component of the index two weeks ago dropped to a very clear #2.
Amazon and Tesla each lost more than 1% of their weightings. Tesla's drop, in particular, might have as much to do with the fact that the stock dropped as much as 14% from its peak last week following its quarterly earnings report. Alphabet fell from 7.2% to 5.5% of the index when you combine of the weight of its two share classes together.
Apple actually saw the smallest decline of the bunch despite being the largest position in the index. Meta also fell less than 1%.
The Nasdaq 100's largest components that fell mostly outside the impact zone of this rebalance - Broadcom and Pepsico - saw weighting increases of around 0.5-0.6%, give or take. Many other components outside the immediate top 10 also saw modest increases to their allocations, but they're mostly immaterial changes that investors are unlikely to notice.
Overall Impact to Nasdaq 100
If you're using the Invesco QQQ Trust (QQQ) or the Invesco Nasdaq 100 ETF (QQQM) for your quasi-tech exposure, fear not. Roughly 58% of the index is still allocated to tech and another 19% to consumer discretionary. That compares to 61% and 19%, respectively, as of June 30th. In other words, don't really expect to see any kind of material change to the performance of your investment.
If anything, it's less exposed to just a handful of mega-cap names and that's probably ultimately a good thing in the long run.