Nasdaq-100 Rebalance Trade That No One Talks About

Next week, six companies volition beryllium replaced successful the Nasdaq-100 Index (NDX) for its yearly reconstitution. The NDX tracks the 100 largest non-financial companies listed connected the Nasdaq Composite (IXIC). The tables beneath outline the stocks being added and removed, on with their 2025 returns and existent brokerage sentiment information from Zacks. I judge these changes tin connection penetration into wherever these stocks are headed. In the nonfiction below, I’ll marque that lawsuit utilizing humanities information from past additions and removals                       

Since 2010, I've tracked 83 stocks added to the NDX and 74 removed. Some securities are excluded owed to unavailable data. Also, I'm lone considering the stocks added and removed successful December during the yearly rebalancing. I’m not considering stocks being eliminated and added mid-year owed to bankruptcy, mergers, etc.

My mentation is that removal from the scale could beryllium a motion of, oregon adjacent lend to, a culmination of antagonistic sentiment towards the stock. That process whitethorn pb to overselling, which could person bullish implications going forward. Conversely, stocks added to the scale whitethorn underperform for other reasons.

The tables beneath amusement banal returns for stocks added to and removed from the NDX since 2010. The returns are from the time they were added oregon removed and past implicit the adjacent period to 1 year. The stocks removed from the scale (second array below), outperformed the stocks added astatine each clip framework by mean return. Buying stocks removed from the scale generated an mean instrumentality of 17.8% implicit the pursuing year, compared with little than 12% for stocks added.

In either case, the scale was much apt to outperform the stocks. However, 46% of the stocks removed bushed the NDX implicit the adjacent twelvemonth and lone 30% of the stocks added bushed the scale implicit the adjacent year. Overall, the information beneath supports my theory.

Next, I examined brokerage sentiment connected the time each banal was added oregon removed, based connected Zacks expert ratings. The archetypal array highlights stocks added to the scale with precise bullish sentiment, portion the 2nd shows stocks removed with highly antagonistic sentiment.

Stocks added with precocious expectations underperformed large time. Among the 19 stocks added with astatine slightest 80% of analysts standing them a "buy," the mean 12-month instrumentality was conscionable 3.5%, and lone 16% outperformed the NDX.

The stocks removed with utmost antagonistic sentiment didn’t amusement arsenic overmuch outperformance arsenic I expected. There were 12 stocks gathering the criteria. Their mean instrumentality implicit the adjacent twelvemonth was an awesome 30% but this fig was buoyed by Netflix (NFLX) successful 2012, which was removed with antagonistic sentiment and went connected to summation implicit 300% for the adjacent twelvemonth (it has since been added backmost to the index).