Dumping Apple

No. Not breaking up with my top stock pick of 1999.

The Nasdaq 100 index is being rebalanced. This is one of those indices which has peculiar weightings, due to some arbitrary decisions made when it was formed. At the time Microsoft was by far the largest component and had to be artificially trimmed to fit into the index basket. This resulted in some small players, including Apple, being artificially inflated to fill the space. Over the years, Microsoft has shrunk, particularly in comparison to Apple, which has exploded.

Apple (AAPL) currently takes up about 20.5% of the index. That will be cut down to 12.3% effective May 2. So, what does this mean?

According to Morningstar, there are currently $330 Billion dollars of assets dedicated to tracking the Nasdaq 100. So, currently, $67.5 Billion of that is invested in Apple. After the changeover, only $40.6 Billion will be invested in Apple. That means all of the funds which track the Nasdaq 100 will need to sell about $27 Billion in Apple shares, or about 8.6% of the market capitalization of the company. On a normal day, about $6.2 Billion of Apple stock changes hands.

More shares will be forced to sell than are usually traded in four days. You can bet there are plenty of hedge funds positioning themselves to take advantage of the opportunity.

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