Nasdaq 100 Adds Five Companies in Annual Rebalance

It's that time of year again. You know: Christmas, New Year's, the Nasdaq-100 Index adds/deletes...

The Nasdaq Stock Market recently announced the annual additions and deletions to the Nasdaq-100, which will become effective as of December 24. The popular index captures the largest 100 non-financial stocks trading on the Nasdaq Stock Market by market capitalization, and serves as the basis for the $21 billion PowerShares Nasdaq-100 ETF (QQQQ). The index relies on a hybrid of modified-market-cap weighting and price weighting. Components are rebalanced on a quarterly basis, and add/deletes happen annually.

This year, five companies are moving out of the index and five companies are moving in.

The companies to be removed include LM Ericsson Telephone Company (ERIC), which had a 0.20% weighting in the index as of December 14; Patterson-UTI Energy Inc. (PTEN), which had a 0.18% weighting; Ross Stores Inc. (ROST), which had a 0.20% weighting; Sepracor Inc. (SEPR), which had a 0.15% weighting; and XM Satellite Radio Holdings Inc. (XMSR), which had a 0.25% weighting. Not surprisingly, all of the stocks were among the bottom 10 components by weighting.

Those five companies are being replaced by Hologic Inc. (HOLX), which targets women's health care needs; Focus Media Holding Ltd. (FMCN), a Chinese digital media company; Hansen Natural Corp. (HANS), a beverage company; Steel Dynamics Inc. (STLD), which operates in the steel industry; and Stericycle Inc. (SRCL), a medical waste management company. The new companies range in size from $5.1 billion to $8.5 billion.

Nasdaq doesn't disclose official weightings before the rebalance. However, Hologic has the largest market cap, and will presumably therefore have the largest weight.

During the go-go days of the 1990s, there was often an "index effect" associated with companies being added to the Nasdaq-100. That effect, however, has largely disappeared in recent years. Moreover, the day of the re-ranking, December 24, is a quadruple witching date - when contracts for single-stock futures, stock options and stock index futures and options all expire - which should help minimize the market impact of the component changes.

After the rebalancing, sector weightings in the index will remain pretty much the same. The Technology sector will remain the largest sector by far, representing roughly 58% of the index, while the next largest sector is Consumer Services at 16.17%. With the completion of the re-ranking, the index will have 39 technology companies and 61 non-technology companies, which implies that the tech companies on average have larger weightings than the non-tech components.

Apple (AAPL) will likely remain the single largest position in the index. Currently, because of the index's unusual market-cap-meets-price-weighting methodology, Apple makes up 13.2% of the index, more than twice the weight of the next largest component - Microsoft (MSFT) - at 6.55%.

NASDAQ Executive Vice President John L. Jacobs says that in total the Nasdaq-100 underlies 580 products in 37 countries.

Written by Heather Bell

Comments

[Buck]

"unusual market-cap-meets-price... methodology" ? i definitely don't understand why AAPL is 12-13% of the Naz-100 index.

for example: GOOG is both a bigger market cap AND a higher stock price. then how the hell is AAPL weighted higher? i have searched for the answer, but to no avail so far.

any clarification would be appreciated.

Buck
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