The Nasdaq-100 index is getting a fresh look.
What happened: The index comprises 100 of the largest non-financial companies listed on the Nasdaq. The popular Invesco QQQ exchange-traded fund tracks the index.
Seven companies listed in the Nasdaq-100 accounted for roughly 51% of the index as of June 3, according to a note by Louis Navellier, chairman of Navellier & Associates. The Nasdaq is looking to fix that problem -- without changing any of the stocks in the index.
Those top seven stocks, Amazon, Apple, Alphabet, Meta Platforms, Microsoft, Nvidia and Tesla, dubbed by some the Magnificent Seven, have skyrocketed this year on artificial intelligence buzz. They have also driven the lion's share of the market's rally this year, though the market's run has widened in recent weeks to include a more diverse basket of stocks.
Nvidia shares have surged about 215% for the year, Apple jumped 47% and Microsoft gained 43%.
Nvidia reached a $1 trillion market cap earlier this year, while Apple topped a $3 trillion market cap last month.
The huge gains mean that these big tech stocks have become bloated in some indexes, which are often weighted by market capitalization. That can pose a problem to investors, since it leaves the market vulnerable to large swings driven by just a handful of companies.
Donald Calcagni, chief investment officer at Mercer Advisors, says investors should be careful when examining an index like the Nasdaq-100's performance, especially when considering its run is highly concentrated in just a handful of stocks with sky-high valuations.
"Investors should really reassess what's in their portfolio — why is it in their portfolio? And are they comfortable with the risks that they're taking?" said Calcagni.
What's a special rebalance? The tech-heavy index will undergo a "special rebalance" in just a couple weeks, according to Nasdaq.
While the Nasdaq-100 is rebalanced quarterly, a special rebalance can take place "to address overconcentration in the index by redistributing the weights," Nasdaq said in a press release.
Nasdaq won't remove or add any stocks to the index during this rebalance, according to the release.
The Nasdaq can rebalance the index outside of its normal quarterly schedule so that issuers with individual weightings that exceed 4.5% don't surpass a combined 48% of the entire index, per the company's methodology.
Special rebalances of the Nasdaq-100 have taken place before in 1998 and 2011, according to Cameron Lilja, vice president and global head of index product and operations at Nasdaq. Stocks fell sharply in the late 1990s, after investors bought up shares of internet based companies that failed to become profitable. In 2011, a debt crisis in Europe hurt US stocks.
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