Nasdaq OMX is rebalancing the Nasdaq-100 index (QQQs), which currently has one company — Apple (AAPL) as more than 20% of the index.

The WSJ notes “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%. Apple will remain the largest component of the index.”

No one should be surprised at this — it is long overdue. If I were running this, I would place a cap on the size any single stock can be in the index at 10%. Rebalance quarterly when it exceeds that level; monthly if it is exceeds it by 3%.

Beyond that, it is simply imprudent for any index to be a proxy for a single stock. The point of indexes is a broad based representation of a given sector or industry.

Apple has risen 4-fold over the past 2 years. Quite bluntly, it is surprising the OMX has waited this long . . .


courtesy of WSJ

Category: Index/ETFs

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5 Responses to “The New Nasdaq”

  1. greg says:

    It appears from the volume in the first half hour to 45 minutes yesterday morning, that some were not surprised, while others didn’t get the memo until late last night. Too bad there wasn’t some type of government agency that could look into this.

  2. VennData says:

    So if their bid goes through for NYSE, will the QQQQ’s biggest component be Exxon?

  3. KidDynamite says:

    the reason this imbalance came about is actually pretty interesting. I am going to try to write a piece on it, but basically they adjusted the weights back around 1998, rebalancing THEN. Back then, AAPL was teeny tiny, so got a boost from the reweight, and then its subsequent outperformance resulted in the mutant weight.

  4. [...] The new Nasdaq.  (Big Picture) [...]

  5. Marc P says:

    BR: “Apple has risen 4-fold over the past 2 years. Quite bluntly, it is surprising the OMX has waited this long . . .”

    Why is this a surprise? Wall Street has worked very hard over the past two years to present happy news to the public. ‘Nothing to worry about, nothing to see here, move along, don’t worry, be happy…”

    I’m surprised they haven’t made Netflix 15% of the index, applied retroactively.