The qqqq's apple problem ...

I'm not an expert on how the NASDAQ 100 index is calculated but the other day i looked at the "holdings" and was shocked to see the percentage of the index made up of apple. Checking here
http://www.powershares.com/products/overview.aspx?ticker=qqqq

we see that apple by far dominates the index by making up 10.74% of it currently (note this changes daily). We currently have the case where the qqqq is a slave to apple. When apple does good so do the Qs, but when it doesn't the Qs will have trouble overcoming the pressure applied by aapl.

Other NASDAQ-100 holdings
Apple Inc. 10.74%
Microsoft Corp. 6.95%
Google Inc. (Cl A) 5.34%
QUALCOMM Inc. 5.17%

From the NASDAQ website i see that they review the holdings quarterly, but given their criteria for doing a re balancing aapl would need to rise to 24% of the index before this would be done. I always thought of the qqqq's as being one of the more balanced ETFs, but this is not the case. It is almost like you should not bother with the qqqq's and just buy appl instead.

This highlights that for ETFs it is critical to check the holdings. They often are not as diversified as they sound. If you were for example under the belief that apple will continue to decline for company specific reasons, but all the other large cap tech stocks will do well and because of this belief you buy the Qs, then you will not perform as desired. That aapl component in the Qs you bought will restrain the gains you may see in the other stocks.

--