Equal Weighted NASDAQ-100 Index: What if the Tech Rally Broadens Out?

All indexes are not created equal. Take the NASDAQ-100 Index, which jumped more than 35% in the first half of the year.

Sure, it’s comprised of 100 different stocks, including many of the mega-cap growth names that have powered the market higher. But the NASDAQ-100 Index is a capitalization-weighted index, meaning that ETFs tracking it have more exposure to the large names than the smaller companies. Of course, this has been a good thing so far in 2023 given the dominance of mega-cap tech stocks. Last year, though, this concentration hurt investors, because tech giants Microsoft Corporation (NASDAQ: MSFT), Meta Platforms, Inc. (NASDAQ: META), and Apple Inc. (NASDAQ: AAPL) saw their stocks pummeled—dragging the overall index down with them.

Source: StockCharts.com, June 28, 2023.

Candlestick charts display the high and low (the stick) and the open and close price (the body) of a security for a specific period. If the body is filled, it means the close was lower than the open. If the body is empty, it means the close was higher than the open.

The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted. For the most recent month-end performance go to Direxion.com/etfs. For standardized performance click here.

In 2023, mega-cap tech stocks are blazing a path. By the end of May, for example, just seven tech stocks accounted for a staggering 84% of the NASDAQ-100 Index’s gains, according to Bank of America’s Michael Hartnett. What the strategist has termed the “Magnificent Seven” saw their combined market caps rise by $3.35 trillion year to date through May. That’s compared to a measly rise of $635 billion for the other 93 constituents of the index.

Another view is that the rally could broaden out—spreading to the smaller stocks in the NASDAQ-100 Index that have lagged the giants in 2023. If this happens, a big beneficiary could be the Direxion NASDAQ-100^® Equal Weighted Index Shares ETF (Ticker: QQQE) as it seeks investment results, before fees and expenses, which track the NASDAQ-100^® Equal Weighted Index*.

QQQE is an equal-weight ETF, meaning it aims for a 1% weighting in all the stocks that comprise the NASDAQ-100 Index. And it’s rebalanced quarterly to keep it equal weight, which means it has the built-in discipline of buying low and selling high.

One way of looking at it is that QQQE has an undersized position in the big guys, and oversized positions in the smaller ones. For you political junkies, think of QQQE like the U.S. Senate: Each state gets the same weighting, no matter whether it’s large like New York, or tiny like Hawaii.

So how does QQQE compare to the cap-weighted index? Not surprisingly, QQQE has a much lower exposure to Information Technology: 35% vs. 49%. It also is less exposed to Information Services (10% vs. 16%). On the flip side, QQQE has a much bigger weighting in both Health Care (13% vs. 6%) and Industrials (11% vs. 4%). Long story short, if those sectors join the market’s bull run, QQQE could outperform its cap-weighted counterpart.

To view a list of the fund’s holdings, click here. Holdings are subject to risk and change.

Upcoming Earnings Present Possible Catalysts

Second-quarter earnings reports are just around the corner and that means potential catalysts for “the other 93” companies in QQQE to shine. Here are a few to watch out for:

*Definitions and Index Descriptions

The NASDAQ 100^® Equal Weighted Index (NETR) is the equal weighted version of the NASDAQ-100 Index^® which includes 100 of the largest domestic and international non-financial securities listed on NASDAQ^® Stock Market based on market capitalization. Equal weighting is a method of weighting index stocks whereby the same exposure is provided to both the smallest and largest companies included in the Index. The Index is rebalanced quarterly and reconstituted annually. One cannot directly invest in an index.

An investor should carefully consider the Fund’s investment objective, risks, charges, and expenses before investing. The Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain the Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at www.direxion.com. The Fund’s prospectus and summary prospectus should be read carefully before investing.

NASDAQ^®, OMX^®, NASDAQ OMX^®, and NASDAQ 100^® Equal Weighted^SM Index are registered trademarks and certain trade names and service marks of The NASDAQ OMX Group, Inc. (which with its affiliates is referred to as the “Corporations”) and are licensed for use by Rafferty Asset Management, LLC. The Direxion NASDAQ-100^® Equal Weighted Index Shares has not been passed on by the Corporations as to their legality or suitability. The Direxion NASDAQ-100^® Equal Weighted Index Shares is not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE PRODUCT(S).

Direxion Shares Risks – An investment in the Fund involves risk, including the possible loss of principal. The Fund is non-diversified and includes risks associated with concentration that results from the Fund’s investments in a limited number of securities. Risks of the Fund include Index Correlation Risk, Index Strategy Risk, Depositary Receipt Risk, Foreign Securities Risk, Cash Transaction Risk, Tax Risk, as well as risks related to the market capitalizations of the securities, and the specific industries or sectors, in which the Fund may invest. Please see the summary and full prospectuses for a more complete description of these and other risks of the Fund.

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