Ark Funds On Nasdaq Rebalancing, Can Smaller Tech Stocks Have Their Spotlight? Plus: A Look At Top 10 Holdings And Weightings

The Nasdaq 100 Index went through a special rebalancing recently due to several holdings seeing their weightings soar in 2023 alongside jumps in share prices.

A portfolio manager from Ark Funds breaks down what the rebalancing could mean.

What Happened: The Nasdaq 100 Index, which is tracked by the Invesco QQQ Trust Series 1 QQQ, saw the weightings of several popular stocks, known to many as the “Magnificent 7” (Amazon, Apple, Alphabet (Class A), Meta Platforms, Microsoft, Nvidia and Tesla) make up over 50% of the assets.

Ark Funds portfolio manager Dan White was asked about the rebalancing during a recent webinar and the impact it could have on smaller technology companies.

White called the rebalancing “rare and special,” noting the last time this happened was 2011. The portfolio manager said the rebalance wouldn’t be needle-moving for Ark, but was important for the fund company for two main reasons.

The Ark portfolio manager said the rebalancing shows investors are looking to artificial intelligence and disruptive technologies and the rebalance also could make some smaller cap stocks standout.

“Two big names that are being trimmed in the Nasdaq are Nvidia and Microsoft,” White said. “We think investors are starting to recognize the potential for disruptive technologies.”

White noted artificial intelligence growth is attracting investors and while Nvidia and Microsoft could be winners, small-cap companies could also be big winners from the disruptive technology.

“The winners are not just limited to just these large positions in benchmarks.”

White added some of the biggest winners in disruptive technologies could be small and not currently included in benchmark indexes.

“We think a lot of them will be smaller, less-known companies.”

White said companies that are pushing innovation will see exponential growth with shifts in technology.

Ark will publish a paper soon that will help people think through why they’re missing innovation in their portfolio, White shared.

Nvidia Corporation NVDA was previously a top holding in the flagship Ark Innovation ETF ARKK before it was sold as valuation soared in early 2023. Ark CEO Cathie Wood and others at the company recognized the disruptive technology and trend of artificial intelligence growth, but may have sold early to help rebalance their portfolio.

Nasdaq 100 ETF Holdings: Here’s a look at the top holdings of the Nasdaq 100 ETF with their current weighting, their weighting on July 10 (if applicable) and year-to-date performance in 2023.

Apple Inc AAPL: New: 11.6%, Old: 12.5%, +54.9% YTD
Microsoft Corp MSFT: New: 9.8%, Old: 12.9%, +44.8%
Amazon.com, Inc. AMZN: New 5.1%, Old: 6.9%, +50.3%
Nvidia Corp: New: 4.2%, Old 7.0%, +219.7%
Meta Platforms Inc META: New: 3.5%, Old: 4.3%, +135.6%
Tesla Inc TSLA: New: 3.3%, Old: 4.5%, +147.5%
Broadcom Inc AVGO: New: 3.1%, Old: N/A, +64.8%
Alphabet Class A GOOGL: New 2.8%, Old: 7.4% combined Class A/Class C, +36.4%
Alphabet Class C GOOG: New: 2.8%, Old 7.4% combined Class A/Class C, +36.1%
PepsiCo, Inc. PEP: New 2.2%, Old: N/A, +6.4%

After the rebalance and Monday’s trading session, 23 of the components of the Nasdaq 100 ETF have a weighting of 1% or more. Several of the biggest gainers in 2023 have seen their weighting come down as shown above.

The flagship Ark Innovation ETF counts only one of the 10 largest holdings of the Nasdaq 100 among its top 10 holdings. Tesla the largest holding, making up 10.9% of the ETF’s assets.

Year-to-date, the Ark Innovation ETF is up 56.4%, outpacing the Nasdaq 100 ETF, which is up 42.9% over the same time period. The Nasdaq 100 ETF is outperforming the Ark Innovation ETF over one-year and five-year time periods.

Photo: Shutterstock

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