Nasdaq re-weighting could hurt Apple’s shares

  • Posted: 05 April 2011 06:49 PM #31

    huskerrx - 05 April 2011 09:29 PM

    Is this rebalancing executed over the ~30 day period between now and 5/2/11?  Or is it done on one day?

    It sounds like it will happen all in under one second based on the presentation that BrazilNuts posted.

    The NDX Special Rebalance will result in a market event similar to the
    annual Russell Reconstitution.

    For every $1 billion benchmarked to NDX, it is expected that 9.5 million
    shares will execute.

    Last year?s Russell Rebalance resulted in a record 1.04 billion shares
    worth $11.2 billion being executed in 0.855 seconds in the NASDAQ Closing Cross.

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  • Posted: 05 April 2011 06:57 PM #32

    I think that is the actual index and not the underlying company shares.  The presentation that BrazilNuts exhibited (page 21) indicates Apple’s shares will decrease from 2.4 billion to 900 million for a difference of 1.5 billion.  I would think this share decrease would occur over the next 30 days.

         
  • Posted: 05 April 2011 07:00 PM #33

    madmaxroi - 05 April 2011 04:18 PM

    If the ETF’s, etc. hold $330 billion and the weighting is being reduced 8 percentage points, that translates into a reduction of AAPL holdings to the tune of $26.4 billion, or roughly 77.6 million shares at a $340 price point.  Some have hinted here that the ETF selling has already started. To mirror the index, wouldn’t the MM have to wait until May 2 or does anyone know for sure that this has or is currently happening.  I, for one, would prefer that the unloading of 77.6 million shares occur over the period of time leading up to May 2 versus it happening over a one to two day period.

    Where did you find the $330B number? I am having trouble finding that.

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    Posted: 05 April 2011 07:03 PM #34

    Reposting from the intraday highlight from the WSJ:

    Quote
    ?Nasdaq estimates that for every $1 billion directly tracking the index, such as through mutual funds or ETFs, 9.5 million shares will change hands. ?It?s going to be a big trade,? says John Jacobs, executive vice president at Nasdaq. However, ?we wanted to make this very transparent. Everyone will see what we?re doing and everyone will have a month before we do this.?
    Unquote

    The link to the article became not free though.

         
  • Posted: 05 April 2011 07:05 PM #35

    cdodge - 05 April 2011 09:49 PM
    huskerrx - 05 April 2011 09:29 PM

    Is this rebalancing executed over the ~30 day period between now and 5/2/11?  Or is it done on one day?

    It sounds like it will happen all in under one second based on the presentation that BrazilNuts posted.

    The NDX Special Rebalance will result in a market event similar to the
    annual Russell Reconstitution.

    For every $1 billion benchmarked to NDX, it is expected that 9.5 million
    shares will execute.

    Last year?s Russell Rebalance resulted in a record 1.04 billion shares
    worth $11.2 billion being executed in 0.855 seconds in the NASDAQ Closing Cross.

    I am pretty confused about this re-weighing/rebalance ... the rebalance will happen all in under one second?  Is this true?  TIA

         
  • Posted: 05 April 2011 07:12 PM #36

    huskerrx - 05 April 2011 09:57 PM

    I think that is the actual index and not the underlying company shares.  The presentation that BrazilNuts exhibited (page 21) indicates Apple’s shares will decrease from 2.4 billion to 900 million for a difference of 1.5 billion.  I would think this share decrease would occur over the next 30 days.

    Russell Rebalancing Poses Late-Day Threat to Stocks, Knapp Says

    This article again makes me think differently, but I do not know.

    [ Edited: 05 April 2011 07:18 PM by cdodge ]

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    Posted: 05 April 2011 07:39 PM #37

    Drew Bear - 05 April 2011 09:48 PM

    madmax & pats: my apologies. I had a mental calculator malfunction.  :-(

    It is still unclear to me how this actually affects AAPL.

    By the time you read this, your chance to make money off the rebalancing of the Nasdaq 100 is long gone. The hedge-fund managers pretty much played that string out within minutes of the news that Nasdaq was altering its benchmark index so that Apple Inc. would play a less dominant role.

    http://www.marketwatch.com/story/apple-and-the-nasdaq-rebalancing-2011-04-05?dist=afterbell

    It is true traders are already making trades today on this news.  However, based on the post from Brazilnuts, the ETF’s that hold AAPL that mirror the Nasdaq 100 will not make their trade until May 2.  I don’t know for sure, but that is my take.  Will be looking for more info.  If anyone has the phone number for SNIPUS, please call him to be the other side of this whopper trade.  smile

         
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    Posted: 05 April 2011 07:40 PM #38

    cdodge - 05 April 2011 10:00 PM
    madmaxroi - 05 April 2011 04:18 PM

    If the ETF’s, etc. hold $330 billion and the weighting is being reduced 8 percentage points, that translates into a reduction of AAPL holdings to the tune of $26.4 billion, or roughly 77.6 million shares at a $340 price point.  Some have hinted here that the ETF selling has already started. To mirror the index, wouldn’t the MM have to wait until May 2 or does anyone know for sure that this has or is currently happening.  I, for one, would prefer that the unloading of 77.6 million shares occur over the period of time leading up to May 2 versus it happening over a one to two day period.

    Where did you find the $330B number? I am having trouble finding that.

    The original post to this thread.

         
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    Posted: 05 April 2011 08:13 PM #39

    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.

    http://www.reuters.com/article/2011/04/05/nasdaq-apple-idUSN0529145020110405

         
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    Posted: 05 April 2011 09:31 PM #40

    Here’s a revealing explanation of how AAPL got to it’s 20% weighting.

    Following the 1998 change, market value wasn?t the only consideration when assigning weights to companies in the Nasdaq- 100, which today gets 60 percent of its value from technology companies. The shift more than a decade ago added an adjustment factor to drive down the representation of stocks such as Microsoft, Cisco, Intel and Dell Inc. (DELL)

    Apple?s weighting has been allowed to increase without restraint because Nasdaq OMX didn?t apply a curb 12 years ago. The change took effect on Dec. 21, 1998, when Apple shares were valued at $4.76 billion. Microsoft, Cisco, Intel and Dell were worth $342.4 billion, $141.9 billion, $195.2 billion and $86.9 billion, respectively.

    Since then Apple shares surged 3,779 percent through yesterday, making them the third most-valuable shares in the world at $314.3 billion. Over the same period, shares of Microsoft, Cisco, Intel and Dell declined 26 percent, 25 percent, 35 percent and 58 percent, respectively.

    http://www.bloomberg.com/news/2011-04-05/apple-s-weighting-in-nasdaq-100-to-be-cut-as-microsoft-cisco-are-raised.html

    Such is life after “losing” the PC wars.

         
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    Posted: 05 April 2011 10:12 PM #41

    I don’t understand the mechanics of how this would be accomplished - if 77M AAPL shares (based on previous post) were to be traded in under 1 second, that would be a mega flash crash. So I’m sure there’s more to it than that - does anyone have info on how the Russell rebalancing impacted individual stocks?

    But if there was any chance of such a massive trade in the blink of an eye, I’d be surprised if the AAPL board did not step up in advance and announce a one-time share buy back just for that day. What better use of the 60B (soon to become 65B) war chest if not to prevent an exchange from punishing your shareholders because of your success!

         
  • Posted: 05 April 2011 10:33 PM #42

    I’m not sure if anyone on this board understands it.  I can understand 77 m shares over 30 days, no problem.  I have tried to research this myself on the internet, but can’t figure it out.  I’m a little worried about my May 335/355 spread.  If I can’t understand what is goin on, then it isnt worth holding Apple until this is out of the way.

         
  • Posted: 05 April 2011 10:43 PM #43

    Too bad Tommo is not here to express outrage on our behalf.

    In his absence, here is what Tyler Durden writes.  Particularly poignant are the last couple of sentences.

    Note to those not familiar with his site:  It is not Apple-frienly and the comments are very crude by AFB standards.

         
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    Posted: 05 April 2011 11:27 PM #44

    Just my opinion, but I think this bodes well going forward. The NAS has done us a favor. If AAPL were to keep increasing in value, it would become an even larger percentage (nobody wants to see AAPL make up 30% of the NAS 100). This way AAPL has had it proverbial leash unhooked. I welcome this news. What a surprise, I am not on the popular side. rolleyes

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    Posted: 06 April 2011 12:45 AM #45

    mbeauch - 06 April 2011 02:27 AM

    Just my opinion, but I think this bodes well going forward. The NAS has done us a favor. If AAPL were to keep increasing in value, it would become an even larger percentage (nobody wants to see AAPL make up 30% of the NAS 100). This way AAPL has had it proverbial leash unhooked. I welcome this news. What a surprise, I am not on the popular side. rolleyes

    I’m not surprised.  :-D   All kidding side, we are all on the side that takes AAPL north from here.