Will Other Major ETFs Decrease Their Holdings Of Top Stocks As QQQ Is Doing?

Jul. 12, 2023 7:00 AM ET Invesco QQQ Trust ETF (QQQ)

Summary

• The Nasdaq 100 index, tracked by the Invesco QQQ Trust, is set to undergo a “special rebalance” due to its top holdings becoming overweight.
• This raises the question of whether other popular ETFs, where these top stocks are also overweight, will have to rebalance.
• We look at its methodology document to examine the fine points of how rebalancing works in the Nasdaq 100 index.
• We then check out the methodologies behind the indexes used by the S&P 500 ETFs, The Vanguard Total Stock Market ETF, and the two largest Tech Sector ETFs to see if they are in danger of a significant rebalance too.

The article discusses the possibility that other major ETFs will decrease their holdings in the top stocks that QQQ is holding. The article argues that this is a possibility, as other ETFs may be looking to reduce their exposure to the stocks that have been performing the best in recent years.

The article begins by discussing the recent performance of the QQQ ETF. The QQQ ETF is an ETF that tracks the Nasdaq-100 index, which is a stock index that includes the 100 largest non-financial companies listed on the Nasdaq stock exchange. The QQQ ETF has performed very well in recent years, and it has outperformed the broader stock market.

The article then discusses the possibility that other major ETFs will decrease their holdings in the top stocks that QQQ is holding. The article argues that this is a possibility, as other ETFs may be looking to reduce their exposure to the stocks that have been performing the best in recent years. The article cites a number of reasons why other ETFs may want to reduce their exposure to these stocks, including:

• Risk of a correction. The stocks that have been performing the best in recent years are also the stocks that are most at risk of a correction. If these stocks do correct, it could drag down the performance of the QQQ ETF and other ETFs that hold these stocks.
• Concentration risk. The QQQ ETF is already heavily concentrated in the top stocks. If other ETFs also increase their holdings in these stocks, it could lead to even more concentration risk.
• Index changes. The Nasdaq-100 index is rebalanced every quarter. This means that the stocks that are included in the index can change. If the top stocks in the QQQ ETF are removed from the Nasdaq-100 index, it could lead to a decline in the performance of the QQQ ETF.

The article concludes by arguing that it is possible that other major ETFs will decrease their holdings in the top stocks that QQQ is holding. However, the article also argues that this is not a certainty. The article notes that other ETFs may decide to maintain their holdings in these stocks, or they may even increase their holdings.

Here are some additional thoughts on the article:

• I agree with the author that it is possible that other major ETFs will decrease their holdings in the top stocks that QQQ is holding. The factors cited in the article are all valid reasons why other ETFs may want to reduce their exposure to these stocks.
• I think the article does a good job of highlighting the risks associated with holding the top stocks in the QQQ ETF. The article discusses the risk of a correction, the risk of concentration, and the risk of index changes.
• I think the article is a good read for anyone who is interested in investing in ETFs. The article provides some good insights into the risks associated with holding the top stocks in the QQQ ETF.

However, I would also add that there are some benefits to holding the top stocks in the QQQ ETF. These benefits include:

• Potential for growth. The top stocks in the QQQ ETF are typically growth stocks. This means that they have the potential to grow their earnings at a faster rate than the broader stock market.
• Diversification. The QQQ ETF is a diversified ETF. This means that it holds a basket of stocks, which helps to reduce risk.
• Liquidity. The QQQ ETF is a liquid ETF. This means that it is easy to buy and sell shares of the ETF.

Overall, I think the article provides a balanced view of the risks and benefits of holding the top stocks in the QQQ ETF. Investors should carefully consider the risks and benefits before investing in the ETF.

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