Now that we're halfway through August, it might be tempting to think it is too late to buy the BetaShares NASDAQ 100 ETF (ASX: NDQ). After all, this is an ASX exchange-traded fund (ETF) that has risen by a whopping 43.6% in 2023 to date.
Yep, NDQ units were going for just $24.82 each at the start of this year. But as of today, this ETF has risen as high as $35.70, just a whisker away from the BetaShares NASDAQ 100 ETF's current 52-week high of $35.96.
But NDQ investors would be used to some stonking returns by now. As we covered just last week, this ETF has managed to earn its investors an average return of 19.52% per annum over the five years to 31 July 2023. Since its inception in May 2015, investors have enjoyed an average annual return of 19.06%.
Massive returns prompt special rebalancing for the BetaShares NASDAQ 100 ETF
As we discussed at that time, these returns have been enabled by the seemingly-unstoppable rise of the US tech giants. Given the likes of Apple, Tesla, NVIDIA, and Microsoft's stunning returns over the past five years (Tesla alone is up more than 1,000%), it's not hard to see where these jaw-dropping gains have come from.
In fact, the ascendency of the 'magnificent seven' tech stocks in recent months has sparked the need for an unusual rebalancing of the BetaShares NASDAQ 100 ETF. Thanks to the massive rises in the value of the four stocks named above, as well as Alphabet, Amazon, and Meta Platforms, the NDQ portfolio has undergone an unscheduled pruning.
According to the provider BetaShares:
In line with the Index rules, the Nasdaq-100 Index was rebalanced in late July as a result of the growth of the so called Magnificent Seven companies during the first half of 2023. These Index rules have been activated before in 1998 and 2011.
The rebalance was undertaken to ensure the Index remains diversified across the top 100 names on the Nasdaq and saw the aggregate weight of issuers whose weights exceed 4.5% fall back below 40%, as per the Index methodology and rules. The Special Rebalance resulted in a total reduction of the weight in the top eight names of 11.8%, which was redistributed on a pro rata basis across the other stocks in the Index.
This has seen all seven of the 'magnificent seven' take an NDQ haircut since the rebalance was undertaken on 15 July. For example, on 14 July, Microsoft had a 12.8% weighting in NDQ's portfolio. But its post-rebalancing weighing now stands at 9.83%.
Likewise, we've seen Nvidia's weighting reduced from 7.29% down to 4.3%.
So, in light of all of these changes, is it too late to buy the BetaShares NASDAQ 100 ETF this August?
ASX investors still can't get enough of the NDQ ETF
Well, Australian investors don't seem to think so and are decisively voting with their wallets. According to BetaShares:
Coinciding with the rebalance of the Nasdaq-100, Australian investors poured nearly $100 million of new money into the ETF over July – the majority of that since the Special Rebalance was announced. July 2023 was the largest month for inflows since December 2021. The fund now holds $3.38b in [funds under management].
Here's some of how Senior Investment Strategist at Betashares Cameron Gleeson explained this phenomenon:
We've detected a shift in sentiment in recent weeks from selected groups of investors who are looking to add or increase exposure to equities within their portfolio. The recent run-up in U.S. equities, plus the better-than-expected U.S. reporting season, has been a catalyst for Australian investors to jump back into quality tech names via our Nasdaq-100 ETF…
The Special Rebalance was a healthy move in line with the Index rules to ensure it remains a diversified exposure to the top 100 companies on the Nasdaq, and obviously investors here and abroad remain very positive about the long-term outlook for this exposure.
