Back in May 2011, the Nasdaq-100 index rebalanced to make Apple less of an influence on the index. At the time, AAPL took up 20.5% of the index, and it was cut down to 12.3%. Since then, AAPL has returned roughly 72%, QQQ, the ETF tracking the Nasdaq-100 has returned around 17%. An equal weighted version of the Nasdaq-100 (rebalanced quarterly) has returned just over 8% since then. The equal weighted ETF, QQEW would obviously not be able to participate as fully in the rise in AAPL, as each quarter they would cut it back down to 1% of holdings.
Apple has contributed 8.9% to the performance of QQQ since the rebalancing, putting the return of QQEW roughly equal to the return of QQQ ex AAPL. While the superior performance of QQQ may be impressive, one shouldn't make an investment decision based on that alone. The performance boost appears to be due solely to one company. Equal weighting indices has been shown to increase performance and lower volatility elsewhere.
If you are looking to form a portfolio with an allocation to the Nasdaq-100, being bullish on AAPL may make QQQ attractive, with its 17.5% weighting in AAPL. However, that same exposure can be captured simply by going long AAPL and QQEW (or the brand new, cheaper, QQQE) - a move which may reduce volatility, and give more meaningful exposure to the smaller components of the Nasdaq-100.
Disclosure: I am long AAPL, QQQ and other components of the Nasdaq-100 in accounts that I manage.
Independent, Fee-Only Financial Advisor
