A day after speaking about Large Cap technology names, and particularly the largest weighted stock in the market cap weighted Nasdaq 100, AAPL (11.38%), we have observed good sized activity in an equal weighted Nasdaq 100 ETF name, QQEW (First Trust Nasdaq 100Equal Weighted Index, Expense Ratio 0.60%), which has seen about $120 million leave the fund on heavy trading volume.
Given that the fund has about $540 million in assets under management, the outflows are worth taking note and perhaps signal some end of quarter profittaking.
Unlike the cap weighted QQQ (PowerShares QQQ, Expense Ratio 0.20%) which has its heaviest concentration across the top three stocks in the index (AAPL, GOOG, and MSFT) making up more than 27% of the overall index, QQEW employs an equal weighted index methodology.
A reconstitution occurs once per year with QQEW during the month of December, but according to fund literature “replacements may be made during the year if there’s a replacement in the Nasdaq-100 Index.”
The initial weights of each membercomponent of the Nasdaq 100 are set at 1%, and then the fund weightings are allowed to freely float with the forces of the market as stock prices will undoubtedly fluctuate over time. For example, now as we approach the end of March, the top holdings in the fund thanks to impressive stock performance recently are TSLA (1.59%), ILMN (1.52%), GMCR (1.32%), ALXN (1.26%), and WYNN (1.22%).
The fund rebalances quarterly (March, June, September, and December) to bring all holdings back to equal weighted on a periodic basis. Given the nature of the recent quarter end sell-off in the marketplace, it certainly appears that portfolio managers are trimming “higher beta” equity positions off of the books, and names such as TSLA, ILMN, and GMCR for example, certainly fit the bill despite their very impressive short term performance.