Nasdaq has recently announced changes to the composition of the Nasdaq 100 Index and the Nasdaq 100 Equal Weighted Index effective before market opens on February 22, 2016.
The benchmark will remove KLA-Tencor Corporation (NASDAQ:KLAC), one of the world's leading suppliers of process control and yield management solutions for the semiconductor and related microelectronics industries, while CSX Corporation (NYSE:CSX), a premier transportation company, will be added to both the index.
Changes in this index often lead to alteration in the fund composition of ETFs closely tracking the index.
This brings the PowerShares QQQ Trust ETF (NASDAQ:QQQ) - the largest and the most popular product in the large cap growth space - in focus. The fund tracks the Nasdaq 100 index, and as such, changes in the index are expected to alter the fund's allocation. Both the fund and the index are rebalanced and reconstituted on a yearly basis.
QQQ ETF in Focus
Launched in March 1999, QQQ holds a basket 106 stocks. Its underlying index, the Nasdaq 100, includes 100 of the largest domestic and international non-financial companies listed on the Nasdaq stock market based on market capitalization.
Apple Inc. (NASDAQ:AAPL) dominates the fund with 11.3% allocation, followed by Microsoft Corporation (NASDAQ:MSFT) with 8.7% allocation. Apart from these two stocks, all the other individual securities have less than 6% exposure each in the fund.
The stock to be removed from the index, KLA-Tencor, has an exposure of less than 1% in the fund.
In terms of sector exposure, the fund is heavily concentrated in Information Technology, with 56.5% of assets invested. Consumer Discretionary and Healthcare also get double-digit exposure in this ETF, with 19.9% and 13.8% weightage, respectively.
The fund manages an asset base of $34.8 billion and trades in heavy volumes of 42.5 million shares a day. The product is one of the cheapest in its space, charging 20 basis points as fees. QQQ currently carries a Zacks ETF Rank #3 or Hold rating with Medium risk outlook.
QQQ has lost 0.6% in the last one month (as of February 16, 2016), compared to the 1.05% gain for the broad market fund the SPDR S&P 500 Trust ETF (NYSEARCA:SPY) and 1.6% for the SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA). In the year-to-date time frame, QQQ (down 10.4%) has underperformed as compared to DIA (down 6.7%) and SPY (down 6.9%).
Being a tech-heavy fund, QQQ has witnessed a sluggish performance due to global growth concerns, a strengthening dollar, weak corporate earnings and uncertain timing of the next interest rate hike. The recent changes made in the index composition are unlikely to have any major impact on the fund's composition.