The rapid rise of a few already massive tech stocks this year is causing Nasdaq to make unusual adjustments to its popular growth index.
The company announced on July 7 that it will do a special rebalance of the Nasdaq 100 Index, which will take effect before the market opens on July 24.
The company said a special rebalance can be used to “address overconcentration in the index by redistributing the weights.”
While the index is already rebalanced on quarterly basis, Nasdaq tries to keep the five biggest stocks below a 40% combined weighting in one rebalance per year designated as the annual adjustment, according to the firm’s methodology. The five biggest stocks appear to be over that threshold currently, according to the holdings of the Invesco QQQ ETF, which tracks the index.
Invesco QQQ Top Holdings
| Ticker | Stock | Weight in fund |
|---|---|---|
| MSFT | Microsoft | 12.67% |
| AAPL | Apple | 12.31% |
| NVDA | Nvidia | 6.97% |
| AMZN | Amazon | 6.73% |
| TSLA | Tesla | 4.41% |
The QQQ’s holdings show how concentrated the index has become. The three largest positions — Microsoft, Apple and Nvidia — account for more than 30% of the fund combined, as Nvidia’s stock price has nearly tripled this year. The top 10 holdings account for a combined weighting of nearly 59%.
Nasdaq said it will announce new weightings on Friday, July 14.
The Nasdaq 100 index consists of 100 of the largest non-financial companies that trade on the exchange, and is often seen as a proxy for growth stocks. The index has surged about 37% year to date, well above the S&P 500 and the Dow Jones Industrial Average.
There are several index funds that track the Nasdaq 100, including the QQQ, which has about $200 billion in assets under management.