ETFs and other products created to track the Nasdaq-100 must buy companies included in the measure to fulfill their mandate. Texas Instruments makes up 1.2 percent of the gauge, which serves as the basis for the PowerShares QQQ Trust, the U.S. ETF with the fifth-highest average daily trading volume in 2012, according to data compiled by Bloomberg.
Membership in the index doesn’t guarantee a company will stick with Nasdaq. Teva Pharmaceutical Industries Ltd., which makes up 1.06 percent of the measure, said in March that it’s leaving for the NYSE at the end of May.
The prospect of getting into the Nasdaq-100 may have prompted Facebook to choose Nasdaq over the NYSE, Josef Schuster, founder of Chicago-based Ipox Schuster LLP, said in a telephone interview. His firm has about $2 billion tied to indexes that track IPOs.
If Facebook gets an index weighting of 3 percent, the PowerShares QQQ “could create $2 billion of systematic demand” for the stock, he said. “It has to be bought, whether it’s high or low, cheap or expensive, so it’s strategically important.”
Facebook may expand its IPO to as much as $10 billion, seeking a market value of $75 billion to $100 billion, people familiar with the plans have said. Only eight companies in the Nasdaq-100 have a market capitalization exceeding $100 billion, according to data compiled by Bloomberg.
Schuster said he’s not sure if his funds will own Facebook because the number of publicly available shares as a percentage of the total may be too low. The smaller IPO size, at the low end of that valuation range, would make 6.7 percent of Facebook shares publicly traded, while a larger sale would give it a float of 10 percent.
At that level, Facebook would join Internet companies such as Groupon Inc. and LinkedIn Corp. in boosting demand by floating less than the usual amount. In a typical offering, investors get shares representing closer to 20 percent of the company, according to Paul Deninger, a senior managing director at New York-based investment bank Evercore Partners Inc.
Traders use the Nasdaq-100 to bet on the technology industry, according to Leo Guzman, president of Guzman & Co. Computer-related stocks make up 68 percent of its value, according to data compiled by Bloomberg.
“The Nasdaq-100 is essentially a trading vehicle where a trader can gain derivative exposure to the technology markets,” Guzman, president of the broker in Coral Gables, Florida, said in a telephone interview. “Membership in the S&P 500, Russell 2000 and MSCI indexes enable you to get more long-term investors.”
More than $5.58 trillion was benchmarked to the Standard & Poor’s 500 Index, with $1.31 trillion directly linked to the index, at the end of 2010, according to S&P’s website.
Berkshire Hathaway Inc., billionaire Warren Buffett’s insurance and investment firm, was picked to join the S&P 500 in January 2010. Index funds may give Berkshire shares stability, Buffett told shareholders that month.
“You’ve got a permanent stockholder for 6 or 7 percent of your shares,” Buffett said at the time. “We like permanent shareholders. That’s exactly what we’re looking for.”