Why? Because due to the QQQ’s unusual weighting methodology, Apple accounts for 12.6% of the fund’s assets. For comparison, Microsoft makes up only 4.8% of the ETF, despite having a significantly larger market cap than Apple: $166 billion vs. $108 billion.
The market-cap oddities don’t end there. Google counts for just 4.7% of the fund, despite having a market cap of $120 billion, almost identical to Apple. And Google’s weight is just a shade above Gilead Sciences, a biotech company that accounts for 3.5% of the fund, despite having one-third of the market-cap of Google.
The oddities trace back to the Nasdaq-100’s methodology. The index is officially a “modified market-cap-weighted index.” New companies entering the index are weighted essentially based on their market cap. But once they’re in the index, the weight of companies rises and falls based on that company’s stock price, with no real rebalancing as other components are added and subtracted from the index.
Apple was added to the index long ago, and the stock has been one of the better-performing equities over the past decade. As a result, its weight in the index has grown and grown and grown.
It’s a potential weak point for the fund. If Apple stumbles, the QQQs will suffer.
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