- The Big Picture - http://www.ritholtz.com/blog -
The New Nasdaq
Posted By Barry Ritholtz On April 5, 2011 @ 7:06 am In Index/ETFs | Comments Disabled
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 
Article printed from The Big Picture: http://www.ritholtz.com/blog
URL to article: http://www.ritholtz.com/blog/2011/04/the-new-nasdaq/
URLs in this post:
 WSJ: http://online.wsj.com/article/SB10001424052748704587004576243231566493842.html
 Image: http://www.ritholtz.com/blog/wp-content/uploads/2011/04/NASDA_NS_20110404183313.jpg
Copyright © 2008 The Big Picture. All rights reserved.