Facebook finally became part of the PowerShares QQQ Trust
(NasdaqGM:QQQ) this week, and if you too heard the deafening
silence, you're not alone.
Part of the tepid reaction is that Facebook now makes up just 1
percent of the index. Sure, that's more than zero, but it's not an
impressive enough number like Apple's 16 percent weighting in QQQ
to actually impact someone's decision whether or not to buy the
fund. Or at least, it shouldn't be.
And to think, because of the Nasdaq-100 Index's seasoning rules,
we had to wait seven months for such an inconsequential weighting,
added Facebook shares almost immediately after the firm's initial
public offering in May.
Of course, waiting may have served shareholders in the "Q's"
After all, Facebook's IPO was a huge flop. It opened at $38 and
almost immediately plummeted, finally reaching a low of $17.73 on
Sept. 4 for a peak-to-trough loss of more than 50 percent.
But even SOCL hasn't shown huge reactions to moves in
That's the beauty of indexing-you diversify away most
single-security risk to instead isolate the market risk of the
market you're targeting.
What I'm getting at is that if you're deciding whether to buy
QQQ, looking at its new Facebook position is the wrong place to
Instead, I'd recommend looking at its portfolio in depth and
figuring out whether the allocations as a whole make sense to you.
For example, do you
want the 67 percent allocation to technology that the "Q's" serve
That's a blog for another day, and until then, it's important to
thoroughly think through why you might want to own Facebook and,
from there, how.
At the time this article was written, the author held no
positions in the securities mentioned. Contact Carolyn Hill at
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