It could be a big week for the Betashares Nasdaq 100 ETF (ASX: NDQ).
That's because on Friday, the index the popular exchange-traded fund (ETF) tracks could make a historic change.
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What's happening?
Gone are the days of the FAANGs. Now is the time of the Magnificent Seven.
These are tech giants Alphabet (NASDAQ: GOOGL), Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), Meta (NASDAQ: META), Microsoft (NASDAQ: MSFT), Nvidia (NASDAQ: NVDA), and Tesla (NASDAQ: TSLA).
These tech stocks have grown so much over the last 12 months, underpinning exceptionally strong returns for the Nasdaq and the Betashares Nasdaq 100 ETF, that they now represent ~55% of the index's weight.
This means that the index is falling foul of its diversification rules. As a result, according to Nasdaq, a historic special rebalance will be announced on Friday, which will then take place later this month on 24 July. This will be only the third time that the index has been rebalanced.
Rebalance
While no stocks will be removed from the index, the weighting of the Magnificent Seven will be trimmed. This means that if these tech giants continue to rise over the next 12 months, you won't be getting as much bang for your buck as you did over the last year.
Though, conversely, investors will be better placed to weather any downturn in the performance of these stocks.
A number of smaller, yet massive by Aussie standards, constituents are expected to plug the gap by having their weighting in the index boosted.
According to Reuters, this includes the likes of Starbucks (NASDAQ: SBUX), Mondelez (NASDAQ: MDLZ), Booking Holdings (NASDAQ: BKNG), and Gilead Sciences (NASDAQ: GILD).
Whatever happens, it will likely be an interesting couple of weeks as fund managers and index funds reshape their portfolios to replicate the changes.
