7 Body Problem inside Nasdaq 100 and QQQ

7 companies cause a problem by being very successful. The Nasdaq 100 was born as an index adapted to the principle of market efficiency: the weight of each stock was decided by investors, until these 7 bodies grew too large and QQQ has changed its nature.

Its influence on the index, decisive for its excellent performance, caused fear. And it led to drastic decisions.

How many professional investors are fully aware of the effects of these changes ?

The Nasdaq 100 index has already been altered three times. They call it «special rebalances.» A fancy way of saying something else: at Nasdaq we no longer respect the valuation of stocks that the market decides every day.

The differences in the composition of the index are enormous.

Before we go down the road to analyze what happened, let’s see how we should invest our money if we wanted to replicate, in an approximate way, the «Origina Nasdaq 100», the one in which each company had a weighting in the index strictly proportional to its market value:


How is this possible? Put in numbers (March 2024), the real value of the Nasdaq 100 companies is $22 T, but the «Magnificient 7» were manipulated and severed, such that the value «measured» in the index is only $14 T for the 100 companies.

A third of the index has been left in limbo.

Nasdaq has its reasons, but they are not market reasons. They are regulatory and taxing, as we will discuss later.

First, we need to identify the magnitude of the problem.

To do this, it is only necessary to compare QQQ’s portfolio with the market values of the companies that make up the Nasdaq 100.

Next, we can ask ourselves the following question: What should we add to our investment in QQQ to replicate the Original Nasdaq 100 (without «special rebalances»)?

Once we have obtained the answer, which is very simple from the numbers, we should simplify it to design a new portfolio, which we call MVP: «Nasdaq 100 – Market Value Portfolio».

Let’s watch a video that summarizes these ideas and expresses them in concrete numbers to adapt our portfolio to market values:

The most widespread adjustment of the Nasdaq 100 was made in July 2023, affecting the weighting of the «Magnificient 7» in the index.

But two «special rebalances» had already been carried out before. The first was in 1998, to reduce the weight of Microsoft. The second, you can imagine, was in 2011, to limit Apple’s influence on the Nasdaq 100.

The reasons for these changes are not directly related to the index, but to the mutual funds that replicate it. QQQ is the most popular, but there are many others.

Investment funds have to comply with regulatory requirements for portfolio diversification, and they create tax complications for their investors if they do not comply with them.

The problem could have been solved by generating another index, as at the time they began to publish the one replicated by QQEW, where all the stocks of the Nasdaq 100 index have the same weighting. But the results for investors weren’t the same.

However, they decided to modify the Nasdaq 100. We can solve that problem if we want to reinvest while respecting the valuations that the market as a whole makes every trading day on Wall Street.

On this website we will try to remedy this situation for those investors who share this interest.

We have already designed a set of algorithms applied to QQQ, MSFT, AAPL, NVDA, GOOG and AMZN.

Based on the trading signals that these algorithms generate, we can emulate in our quantitative trading an investment in Nasdaq 100 at market values, with controlled risks.

In this portfolio, which we call MVP, you will find a seventh component: Cash.

It will be the result of the temporary investment in Cash that our algorithms generate for each of the six assets that we will use in MVP:

  • 70% QQQ
  • 8% MSFT
  • 7% AAPL
  • 5% NVDA
  • 5% GOOG
  • 5% AMZN

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