News today was that the ‘Nasdaq’ is “re-balancing” its ‘Nasdaq-100′ index to give more weight to Google, Intel, Microsoft and Oracle, but reduce the weight given to Apple stock.
What does this mean? And why does it matter?
The Nasdaq is a stock market or a stock exchange that allows investors like you or I to purchase and sell stocks or shares in companies that have listed their shares with it for trading.
As with most major stock exchanges around the world, the Nasdaq stock exchange publishes an index which can be used by investors and the media to evaluate how a group of companies or a market as a whole is performing. This is important because watching the share price of any one company is not a reliable way of evaluating how a market or a part of an economy is performing. But an index, which is a weighted average of a number of stocks, can be monitored and can give much more useful information.
The Nasdaq stock exchange publishes a number of indices (indexes) but in the news today, the Nasdaq-100 was specifically discussed. The Nasdaq-100 index is an index of the 100 largest non-financial companies listed on the Nasdaq exchange, and features a number of technology companies.
Some indices (indexes), are particularly important because they are used to guide the way fund managers (organisations or people that invest money on behalf of other people) allocate their investments. For example, a particular fund manager might tell people investing in a retirement fund that the fund will be managed to achieve a return very similar to that of the ‘Nasdaq-100′ index.
So today the Nasdaq exchange announced that it would change the weighting of the Nasdaq-100 index to reduce the amount of weight given to Apple stock and increase the weightings of other companies such as Google and Microsoft so that the index as a whole more accurately reflects the relative value of these different companies.
One of the implications of this is that many fund managers around the world will have to sell Apple shares to bring their funds in line with the Nasdaq-100 index, and that will potentially cause Apple’s share price to fall.