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The rapid rise of some already massive tech stocks this year is causing the Nasdaq to make unusual adjustments to its popular growth rate.
The company announced on July 7 that it will make a special rebalancing of the Nasdaq 100 Indexwhich will enter into force before the market opens on July 24.
He Nasdaq 100 The index comprises 100 of the largest publicly traded non-financial companies and is often considered an indicator of growth stocks. The index is up 37% year to date, well above the S&P 500 and the Dow Jones Industrial Average.
Nasdaq said a special rebalancing can be used to “address excess concentration in the index by redistributing the weights.”
While the index already rebalances quarterly, Nasdaq tries to keep the five largest stocks below a combined 40% weighting in one rebalance per year designated as an annual adjustment, according to the company’s report. methodology. The five largest stocks appear to be above that threshold at present, according to the holdings of the Invesco QQQ ETFwhich tracks the index.
The QQQ positions show how concentrated the index has become. The three largest positions: Microsoft, Apple and nvidia — account for more than 30% of the combined fund, as Nvidia’s stock price has nearly tripled this year. The top 10 holdings represent a combined weighting of almost 59%.
This is the third special rebalancing on record for the Nasdaq 100. The company said it will announce new weightings on July 14.
“The special rebalancing is part of the Nasdaq-100 methodology and ensures that index-tracking funds maintain compliance with fund diversification rules. Special Nasdaq-100 rebalancings were previously conducted in 2011 and 1998,” Cameron Lilja, global head of index products and trading at Nasdaq, said in a statement.
The Nasdaq 100 has rallied considerably this year.
There are several index funds that track the Nasdaq 100, including QQQ, which has about $200 billion in assets under management.