To The Moon

On 13 Jul 2023, I have posted about Nasdaq Rebalance, FAANG & More Affected?

Some pf the topics covered (extracts):

• When will rebalance occur?

• Why rebalance is required?

• List of Nasdaq 100 index Top 20 stocks (current).

• Personal view of rebalance exercise.

• 3 “new” stocks to benefit from rebalancing (I think)?

If you like to read it, click on above “Blue Title”.

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Monday - 24 July 2023

Time flies.

Monday, 24 July 2023 was d-day where Nasdaq 100 rebalancing would be effected, when trading begins.

Aftermath of Previous “Rebalance”.

According to Nasdaq’s VP & Global Hd of index product and operations, Cameron Lilja:

• In 1998 rebalancing exercise, Nasdaq stocks fell sharply in the late 1990s, after investors bought up shares of internet-based companies that failed to become profitable.

• In 2011, the rebalancing exercise undertaken while Europe was in a debt crisis, hurt US stocks headon.

Will “Stocks” Investors Be Affected?

• US stocks investors will be indirectly affected by the rebalance.

• Billions of dollars of stock will be bought & sold in response to the rebalance.

• Selling will occur in some of the most liquid stocks, luckily.

• This means price impact should be limited.

• Markets may experience a bit higher volatility as (a) changes become known and (b) market re-positions.

Stocks affected by Rebalancing exercise

Stocks with weightings Reduced. {Boo Hoo Hoo!}

The 7 stocks mentioned in my original post

The 7 stocks have been mentioned in my previous post; only that weighting adjustments were still under wrapped.

Most “Reductions” 3 Stocks:

• -2.98% / $NVIDIA Corp(NVDA)$.

• -2.94% / $Microsoft(MSFT)$.

• -1.91% / $Alphabet(GOOGL)$.

Stocks with weightings Increased. {Hurray!}

Most “Increment” 3 Stocks:

• +0.64% / $Broadcom(AVGO)$.

• +0.45% / $Pepsi(PEP)$.

• +0.42% / Costco.

How Will Funds Houses Administer The Changes?

• Funds tracking the Nasdaq-100 Index will need to sell out of top holdings to the extent prescribed by the index.

• Next, Funds houses will then reallocate that cash to other stocks in the portfolio.

• In all likelihood, the trades would have been performed at the close on 21 July; instead of prior just before 24 July.

Will “Funds” Investors Be Affected?

• Investors of funds (eg. ETFs) tracking Nasdaq-100 Index will start 24 July with a different (re-balanced) portfolio.

• Differences would not be vast, but the fund will be different.

Portfolios face trading costs from the rebalance that:

• Could cause a minor drag on performance.

• Selling of high-performing stocks would incur the potential for a tax bill for funds.

Affected ETFs - Part One

Affected ETFs - Part Two

• Above 2 lists contain 10 ETFs & 4 Open ended funds that tracks the Nasdaq 100.

• This means they will be affected by the Nasdaq 100 rebalancing exercise.

• Investors in any of the funds should spend some time going through the revision to see if they still fit your needs.

My Thoughts:

• I cannot wait to witness history in the making, with the rebalance exercise.

• This is something “new” to me and I am curious how it will all turn out for both (a) stocks and (b) funds (ETFs or Open-ended funds).

• Do you think your portfolio will be affected by the rebalance exercise?

• Do you think you will learn something new post rebalance exercise?

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