Nasdaq 100 to undergo special rebalance to address overconcentration of 'magnificent seven'
Currently, Microsoft, Apple, Nvidia, Tesla, Alphabet, Meta Platforms and Amazon, which are described as the “magnificent seven”, account for more than half of the index’s weight when combined.
While the index is typically reconstituted at the end of each year, with additional opportunities to rebalance each quarter, a special rebalance may take place in certain circumstances.
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Nasdaq may perform a special rebalance if the current weight of its largest stock exceeds 24%, or the «collective weight» of securities whose individual current weights are over 4.5% exceed 48% when added together.
Currently, Microsoft, Apple, Nvidia, Tesla, Alphabet, Meta Platforms and Amazon, which are described as the «magnificent seven», account for more than half of the index's weight (54.5%) when combined.
However, Meta, which has a weighting of 4.3%, does not fall into the rebalancing rules. All of the other firms in the 'magnificent seven' will be affected, with the Microsoft sitting as the largest, with a weighting of 12.9%.
The special rebalancing, which will take place before market opening on 24 July, will see the equity weightings reduced so the aggregate weight does not exceed 40%.
As the index serves as a benchmark for a number of financial products, including ETFs, mutual funds, futures and options, they will also be impacted by the rebalance.
The largest ETFs set to be impacted are the £7.5bn iShares Nasdaq 100 UCITS ETF and the £3.9bn Invesco EQQQ Nasdaq-100 UCITS ETF.
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There is potential for one-off gains or losses as the planned changes are announced later this week.
The special rebalance will be enacted
Read more on investmentweek.co.uk
