Nasdaq 100 Rebalancing: Will ETFs Feel the Pressure to Sell Top Growth Stocks?

investing.com:

Back in 1998 and 2011, the Nasdaq 100 index faced a similar problem it faces today. First, with Microsoft (NASDAQ:MSFT) making up more than 25% of the entire basket, and later with Apple (NASDAQ:AAPL) taking up 20% of the index.

Interestingly, although Apple's market capitalization was similar to that of Microsoft, its impact on the index was five times stronger due to a previous correction. In both cases, they decided to do a 'special' rebalancing to solve funds' diversification issues.

And guess what? Today marks the third rebalancing of the Nasdaq. This time, things are a bit different. They're going to rebalance the first six stocks: Apple, Microsoft, Alphabet (NASDAQ:GOOGL), Amazon.com (NASDAQ:AMZN), NVIDIA Corporation (NASDAQ:NVDA), Tesla (NASDAQ:TSLA), and maybe Meta Platforms (NASDAQ:META), which is currently still below the 4.5% threshold.

These six stocks account for more than 50% of the benchmark and a whopping 77% of the index's annual earnings. Once again, this poses a diversification-related difficulty for funds trying to replicate the index.

Forget about those conspiracy theories aiming to limit tech; the reality is quite different. The percentage reduction of the stocks mentioned above is solely due to regulatory factors.

With that said, the rebalancing will indeed reduce the influence of tech giants while increasing the presence of other Nasdaq stocks. Let's take a moment to appreciate the remarkable gains of these megacap tech companies this year.

On average, they have surged by over 70% since the beginning of the year, which is three times the average performance of stocks in the U.S. index.

As of July 20, 2023, here are the year-to-date performances of some key tech companies:

These gains are truly