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Nasdaq slashes Apple's weighting in benchmark index

The stock market's late-night announcement spurs volatility in Apple shares. The rebalancing means Microsoft, Cisco Systems and Oracle will see their influence in the Nasdaq 100 index increase.

April 05, 2011|Reuters

Nasdaq's late-night announcement to adjust weightings in the benchmark Nasdaq 100 index spurred volatility in Apple Inc. shares and surprised U.S. fund managers, who questioned the timing of the news.

Apple will be the most affected by the move, with its weighting slashed nearly in half, though it will remain the largest component of the index. As word spread of the changes, Apple shares dipped in premarket trading, before recovering during regular U.S. trading hours.

The rebalancing is not unusual, but Nasdaq OMX Group Inc., operator of the Nasdaq stock market, announced it at around 3 a.m. Tuesday, making early trading more unpredictable.

"It's surprising and unsettling that the Nasdaq would release this information in the middle of the night, let alone at this moment in the calendar — right ahead of earnings season," said Keith Wirtz, president and chief investment officer at Fifth Third Asset Management in Cincinnati.

The rebalancing will have the biggest effect on the largest components of the index. Unlike Apple, bellwethers Microsoft Corp., Cisco Systems Inc. and Oracle Corp. will see their influence in the index rise.

Apple, which has a market capitalization of $314 billion, will see its weighting drop to 12.3% from 20.5%.

In all, 82 components will see their weight lessened when the rebalancing takes effect May 2. More than $330 billion in funds and $40 billion in exchange-traded funds benchmarked to the Nasdaq 100 will have to adjust their portfolios.

Other asset managers are likely to try to get in front of the rebalancing in the interim by buying and selling affected stocks, anticipating activity by indexers.

"In the short term, this is going to have a significant impact and create additional volatility," said Oliver Pursche, president of Gary Goldberg Financial Services in Suffern, N.Y.

Apple shares fell around 3% in premarket trading and Nasdaq futures dropped at the opening bell. Shares of Apple rebounded during the day, ending down $2.30, or 0.7%, at $338.89.

"This is just a temporary blip. It won't impact the long-term story of the stock," said Jerome Heppelmann, portfolio manager and chief investment officer at Old Mutual Focused Fund.

John Jacobs, executive vice president in Nasdaq's global index group, said Nasdaq timed the release to be ahead of the market opening in Europe, where the Nasdaq 100 Trust exchange-traded fund also trades. Nasdaq 100 futures trade around the clock on CME Globex.

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