Explainer-What is Nasdaq's special rebalancing and its impact?
By Sruthi Shankar and Medha Singh
(Reuters) — A «special rebalance» of the Nasdaq 100 index will take place later this month as exchange operator Nasdaq looks to reduce the concentration of heavyweight companies that account for nearly half of the index's weight.
A blistering rally in growth and technology stocks has lifted the Nasdaq 100 index by 37.5% this year. That compares with a 14.8% gain for the benchmark S&P 500.
Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), Nvidia (NASDAQ:NVDA), Amazon.com (NASDAQ:AMZN) and Tesla (NASDAQ:TSLA) combined account for 43.8% weight in the index, according to Refinitiv data as of Monday's close. As part of the rebalance that will come down to 38.5%.
«There is some concern that this handful of names is distorting the health of the overall stock market, which is likely what's spurring the special rebalancing,» said Art Hogan, chief market strategist at B Riley Wealth.
The adjustment will be based on shares outstanding as of July 3, with changes set to be announced on July 14 and taking effect before the market opens on July 24.
WHAT IS A SPECIAL REBALANCING?
A special rebalancing, which is part of Nasdaq 100's methodology to maintain compliance with a U.S. Securities and Exchange Commission rule on fund diversification, has taken place twice before, in 2011 and 1998, said Cameron Lilja, global head of index product and operations at Nasdaq.
The special rebalancing may be conducted at any time if the aggregate weight of companies, each having more than 4.5% weight in the index, tops 48%, according to Nasdaq. During the rebalancing, it is capped at 40%.
Microsoft has the largest weight at 12.91%, followed by Apple at 12.47%, Nvidia 7.04%, Amazon 6.89% and Tesla 4.50%, according to
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