Indices are businesses. The more we trade their products or license their trademarks, the more money they make.
Apparently, the tech heavy Nasdaq OMX Group (NASDAQ:NDAQ) believes it will make more money by reducing its weighting of Apple (NASDAQ:AAPL) — the largest position in the Nasdaq 100 (NASDAQ:QQQ). Apple currently comprises 20.49% of the index, but will drop to 12.33%.
This is a big deal for Apple because funds tracking the Nasdaq 100 (NASDAQ:QQQ) will now need to sell shares of Apple to rebalance their tracking.
After the Nasdaq 100 used Apple to produce incredible gains over the past few years, they must believe the stock has less room to grow — otherwise, they would prefer to continue riding Apple’s coattails. So, does Nasdaq OMX Group (NASDAQ:NDAQ) know something about Apple CEO Steve Jobs that we don’t?
We do not have any evidence NDAQ has additional information about Steve Jobs’ health or his plans to step down as CEO. However, we think the major rebalancing of the Nasdaq 100 (NASDAQ:QQQ) is based on major due diligence by the exchange operator. A ton of money can be made or lost based on whether the Nasdaq 100 has a superior weighted index. And we don’t think they are making huge guesses — especially with the competition in the exchange space heating up.
The Nasdaq says the event has to do with reducing volatility (NYSE:VXX) — from 19.48% to 16.2%. However, volatility attracts traders, traders increase transactions, and transactions equal money. So, it’s a bit of a questionable logic. More likely, the Nasdaq is hedging a slowdown in their thoroughbred Apple and betting large cap blue chip stocks will be in more favor over the next few years.
You can see where Nasdaq believes investors will be placing more bets: Microsoft (NASDAQ:MSFT), increasing weighting to 8.3% from 3.41%, Intel (NASDAQ:INTC) increasing weighting to 4.2% from 1.75%, and Oracle (NASDAQ:ORCL) increasing weighting to 6.68% from 3.38%.
Apple’s market cap (~$300 billion) is twice Google’s (NASDAQ:GOOG), but Apple’s weighting in the Nasdaq 100 was five times higher. That’s called leverage — and leveraging to Apple was a brilliant move in the past. Now, Google’s share of the index will be 5.8% versus Apple’s 12.3%. That’s de-leveraging.
Call us conspiracy theorists, but actions speak louder than words.