The Nasdaq-100 index (NDX) will undergo a “Special Rebalance” before the market opens on Monday, July 24, 2023. In simple terms, rebalancing means that the index will readjust the weight of its components. Several ETFs, including the famous Invesco QQQ Trust (QQQ) ETF (Exchange-Traded fund) that have the NDX index as their benchmark, will be impacted as they are required to make adjustments to their portfolios. However, investors shouldn’t worry much as the move doesn’t include removing or adding any securities.
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The rebalancing intends to lower the Nasdaq-100 Index’s concentration in a handful of mega-cap stocks. For instance, the buzz around Generative AI (Artificial Intelligence) and overall buying in shares of large technology companies, including Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Nvidia (NASDAQ:NVDA), Meta Platforms (NASDAQ:META), Amazon (NASDAQ:AMZN), and Alphabet (NASDAQ:GOOGL)(NASDAQ:GOOG) have increased their weightage in the Nasdaq-100 Index.
Thus, through rebalancing, the index will be redistributing the weight of these large companies to lower overconcentration risk. Meanwhile, ETFs will have to sell some of their holdings to realign their portfolio and reallocate these funds to other stocks in the portfolio.
Is QQQ a Buy or a Sell?
The announcement of the rebalancing of the Nasdaq-100 Index didn’t have any negative impact on QQQ’s price. The ETF inched up around 3.5% in the past five trading days. Overall, the ETF is up about 43% on a year-to-date basis.
The QQQ ETF has an Outperform Smart Score of eight on TipRanks, suggesting it has the potential to outperform the broader market averages. Moreover, per the recommendations of 1,732 analysts giving stock forecasts for the holdings of QQQ, the 12-month average Invesco QQQ Trust ETF price target of $397.12 implies 4.76% upside potential from current levels. Also, the ETF carries a Moderate Buy consensus rating on TipRanks.
Among these analysts (providing ratings on its holdings), 66.51% have given a Buy rating, 29.73% have assigned a Hold rating, and 3.75% have given a Sell rating.
