Does this type of rebalancing cause index ETF holders to pay transaction fees they wouldn't otherwise have to pay?
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Apple's Weighting in Nasdaq-100 Cut
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Close, but not quite. Assuming the $330bn of assests track the Nasdaq 100, those funds would have to sell $26B of Apple shares to correctly track the adjusted Index. However, this doesn't mean those shares would be worthless, only that those funds would have to sell at an unfavorable time, pushing the price down an indeterminate amount.
In fact, the market should be reasonably efficient with respect to this, so the immediate $10B drop is probably pretty close to the actual effect.
The funds themselves would incur transaction fees, which indirectly would be passed on to the fund holders.
"Apple's weighting in the stock index is said to be overrepresented at 6x the value of the second largest stock (Microsoft) despite only having a 46 percent larger market value."
Until 1998, the Nasdaq 100 was a straight market-cap weighted index, but that year, a change prompted the Nasdaq to create a goofy weighting system because Microsoft was above 25% of the index which jeopardized the index's tax status. This change gave more weight to weaker components; at the time, AAPL was one of the smallest components of the Nasdaq-100.
Since then, AAPL's value has soared while MSFT's has stagnated. The goofy weighting of 1998 has artificially magnified AAPL's importance on the index (and conversely minimized MSFT's importance), hence the return to the straight market-cap weighted system.
There is far more parity in today's tech market than there was in 1998, when the industry was dominated by Microsoft.
This restructuring of a major market index is basically an official declaration that Microsoft's days of domination are over.
johnnyturbouk
macrumors 68000
Incorrect, you are assuming that ALL the compulsory selling has occurred which it has not - many passive index trackers will sell on the day of the reweighting - so it isnt all priced-in - this isnt an exact science but with this volume of shares being sold it will be somewhere in between, so $10bn has sold so far, lets take a guess at around 20% of the $330bn funds tracking are passive trackers who have to sell on the day, therefore there could be at least a further $3.2bn - I'm not sure what % are passive trackers though
Indexes are supposed to be a representation of how the whole market moves. Imagine if Apple becames so big in market capitalisation that it was 50 times bigger than any other company in the Nasdaq 100, the index wouldnt be a fair representation of how the whole market moves - it would be much more of an indicator to Apple's share price movements. Therefore most index companies have a methodology that states when a company breaches a specific % of the whole index, they will limit its size.
Its a big problem in Russia where the market is made up of 4 very large Oil & Gas companies and nt much else, some indices ajdust for this and this is exactly what Nasdaq is doing to Apple.
Has anyone considered purchasing stocks of companies which Apple uses? Say for instance Intel and ARM Holdings. ARMH has skyrocketed in the past couple of years, no doubt due to the success of the iPhone/iPod and now iPads. Would they be worth investing in? The next iPhone is expected to continue using ARM processors, as is the next iPod, and presumably iPad 3. Any one of these items sell extremely well.
Thoughts?
Thoughts?
FWIW, I bought Apple suppliers during the iPod's success. As I recall, I made money but not much.
What did they supply to iPod?
ARM seems to supply the core chips to the iPhone, iPod and iPad. This could be more worthwhile as its one of the main (if not the most major) component of those equipment.
I guess my idea is, if you can't afford Apple stock, buy their more affordable partners. Or am I misguided?