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Briefly Noted

The NASDAQ’S Rebalancing Act

Last month, NASDAQ OMX announced a rebalancing of its NASDAQ-100 index. Effective May 2, 2011, the index will be reorganized so that each company’s weighting within the index will be more reflective of its relative market capitalization.

This change was made specifically to adjust for the appreciation in shares of Apple (AAPL). When the reorganization was announced, Apple had a weighting in excess of 20%, even though the company’s market capitalization suggested a weighting of closer to 12%. The reason for the difference is that NASDAQ had used adjustment factors set in 1998 to weight the index, instead of a company’s actual number of shares outstanding. Effective with the rebalance, the index securities will be closely linked to a company’s actual market capitalization.

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