(Corrects lead to reflect late-night announcement, not
* Apple weighting cut to 12.3 pct from 20.5 pct
* Index rebalancing to take effect May 2
* Money managers surprised at timing
(Updates Apple share price)
By Edward Krudy
NEW YORK, April 5 Nasdaq's late-night
announcement of plans to rebalance its benchmark Nasdaq-100
Index .NDX spurred volatility in Apple shares and surprised
U.S. fund managers who questioned the timing of the
Rebalancing is not an unusual event, but the Nasdaq
announced it at around 3 a.m. (0700 GMT) on Tuesday, making
early trading more volatile.
"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, Ohio.
Nasdaq OMX (NDAQ.O) said it will cut the weight of 82
securities to bring them more in line with their market
By far, Apple will be the most affected by the move, with
its weighting slashed from 20.5 percent to 12.3 percent,
though it will remain the largest component of the index.
Apple has a market cap of roughly $314 billion.
The news initially knocked down shares of Apple (AAPL.O)
while it boosted shares of Microsoft Corp (MSFT.O), whose
weighting will increase, and was one reason for a fall in
Nasdaq futures before the opening bell.
Apple shares fell around 3 percent in premarket trading
but by early afternoon had reversed early losses to trade up
0.01 percent at $341.24.
"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
John Jacobs, executive vice president in Nasdaq's global
index group, said the timing of the Nasdaq announcement was in
order to be ahead of the market open in Europe where the
Nasdaq-100 Trust exchange-traded fund (QQQ.O) also trades.
Nasdaq-100 futures trade around the clock on CME Globex.
"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, New
More than $330 billion in funds and $40 billion in
exchange-traded funds are benchmarked to the Nasdaq 100,
including the QQQ, the most actively traded Nasdaq-tracking
ETF, which has a market capitalization of $24.4 billion.
Graphic: Rebalancing winners and losers
Apple outperforms, Microsoft lags
The rebalancing goes into effect May 2. It will affect the
relative weights of all the securities in the index and cause
popular index-tracking funds such as the PowerShares QQQ to
buy and sell shares to match the new composition.
Much of Apple's excess weighting was distributed between
other large-cap technology shares that had become
underweighted relative to Apple.
Microsoft's weighting will rise 4.9 percentage points. Its
shares rose 1.7 percent to $25.99.
Other big changes include Oracle Corp ORCL.O, whose
weighting will rise to 6.7 percent from 3.3 percent, Intel
Corp (INTC.O), up to 4.2 percent from 1.8 percent, and Cisco
Systems (CSCO.O) up to 3.7 percent from 1.6 percent.
"You'll see additional volatility from this news,
especially given that the Russell Index will also go through
its reconstitution in May and June," Wirtz said.
James Angel, a Georgetown University professor who
specializes in financial market regulation and sits on the
board of directors of the Direct Edge stock exchange, said
there should be advance notice of a planned index change.
However, he said Nasdaq might be trying to avoid some of
the gaming that has occurred in the rebalancing of the Russell
2000 by giving less advance notice.
"If all they're doing is following their formula, then the
people who need to know presumably know the formula," Angel
said. "On the other hand, if they're doing something that they
have the discretion to do but isn't exactly the formula, then
it would be useful to give people a little heads up."
The relative positions of the issues within the index will
remain the same once the rebalancing takes effect May 2,
according to Nasdaq. Apple will remain the largest component.
The rebalancing will be based on index securities and
shares outstanding as of March 31, the exchange said.
(Reporting by Ed Krudy; additional reporting by Jennifer
Ablan, Herb Lash, Ryan Vlastelica, and Chuck Mikolajczak;
Editing by Kenneth Barry and Leslie Adler)