Following the Flows: Beta-Hedging around Nasdaq RebalancingMicro E-mini Nasdaq-100 Index Futures (Mar 2026)CME_MINI_DL:MNQH2026mintdotfinanceRebalancing can create some of the most predictable flows in equity markets. When an index changes the weights of its constituents, funds tracking it must buy and sell the affected stocks to stay aligned with the benchmark. Those adjustments can influence prices, particularly for companies seeing the largest weight changes relative to their market cap/daily volume. The Nasdaq-100 is a good example. Its modified market-capitalisation methodology forces a redistribution of weight across the broader index when the largest constituents become too dominant. The result is a rotation wherein large index constituents are trimmed while smaller constituents absorb the redistributed weight. This note examines how Nasdaq-100 rebalancing/reconstitution operates and outlines a simple educational trade structure using Micro E-mini Nasdaq-100 futures to illustrate how traders can position around rebalancing. Rebalancing Rules The Nasdaq-100 is constructed using a modified market-capitalisation weighting framework designed to prevent excessive concentration among the largest constituents. The index undergoes two types of adjustments. Annual reconstitution determines which companies are included in the index. Companies may be added or removed depending on eligibility requirements such as listing venue, market capitalisation, and sector classification. Quarterly rebalancing, in contrast, adjusts constituent weights. The process begins with raw market-capitalisation weights based on updated prices and shares outstanding. These weights are then tested against two concentration thresholds embedded in the methodology.First, no single company may exceed 24% of the index weight. If breached, the company is scaled down to 20%. Second, the combined weight of companies exceeding 4.5% cannot exceed 48% of the index. If breached, the largest companies are scaled down and the excess weight redistributed across smaller constituents while preserving rank order. The Nasdaq-100 is rebalanced and reconstituted periodically. The calendar for 2026 rebalance/reconstitution events is provided below. Firms Exposed to the Current Rebalance Applying the Nasdaq-100 methodology to recent market capitalisations highlights a cluster of mega-cap technology firms that are likely to be trimmed down at the March rebalance. As of 02/March, 2026, the cumulative weight of firms with 4.5% of index weight summed up to 60.8%. To scale them back to 40%, we must multiply their weights by 0.66. Likewise, for the remaining 39.2% of the weight, they must be scaled to 60% cumulatively. Multiplying each weight by 1.53 would give us the new weights for these firms. However, doing this naively would alter the ranking post-adjustment, as seen in the table above. Therefore, Nasdaq subsequently adjusts the weights of constituents to preserve rank order, meaning the final weights may differ slightly from the proportional redistribution shown here. Capping all subsequent weights below Meta’s new 2.98%, and redistributing down the rest of the index iteratively, the new weights could be similar to the following: The biggest gainer would be the ASML ADR, while Micron, Costco, and Netflix also gained about 1% in their weights for the quarter. The annual reconstitution, on the other hand, takes place in December, wherein several firms were introduced in 2025: Source: Nasdaq The rules for the reconstitution are dictated by market-cap weighted rankings while adding a lag factor to ensure firms are not being constantly added/removed. For reference, the firms removed last year were: Source: Nasdaq Historical Trade Example Consider an investor anticipating index-addition flows into the six firms following their inclusion in the Nasdaq-100 in December, 2025. To isolate these stocks’ relative performances while neutralising broader market exposure, the position can be hedged using Micro E-mini Nasdaq-100 futures. Assume the investor allocates $100,000 equally across these 6 tickers: WDC, STX, MPWR, FER, ALNY, and INSM. Taking prices from 19/Dec 2025 for all of them, an allocation of roughly 552 shares across firms is made, with an average share price of $181.53. To estimate the portfolio’s sensitivity to the Nasdaq-100, we compute a value-weighted average beta across the six positions. Each stock’s beta is weighted by its share of the total invested capital, and the contributions are summed to arrive at an aggregate portfolio beta. The individual weights amount to about 0.166, given an almost proportional allocation. For example, the weight for MPWR would be 16,866/100,202 = 0.168. Computing the aggregate beta for the portfolio: 0.166(1.76) + 0.165(1.61) + 0.168(1.45) + 0.166(0.15) + 0.168(0.36) + 0.166(1.13) = 1.07 This brings our aggregate exposure to 107,000, and in order to hedge this position, we would require: 107,000/50,600 = 2.11, or roughly 2 MNQ contracts. If the position of holding our portfolio while shorting 2 MNQ futures was held from 19/Dec to 20/Jan, i.e. the window comprising one month after the last rebalancing, the P&L would have been as follows: Stock PnL 3,864 + 1,680+ 1,746 +0 −1,890 − 1,140 = 4,260 Futures PnL 2 x 2 x (25,300 – 25,100) = 800 Net strategy PnL 4,260 + 800 = USD 5,060 Had that position been held until the date of the next rebalancing announcement (March 13, 2026), the relative performance would have been as follows: Stock PnL 8,372 + 4,928 + 2,070 – 996 − 3,654 − 3,325 = 7,395 Futures PnL 2 x 2 x (25,300 – 24,500) = 3,200 Net strategy PnL 7,395 + 3,200 = USD 10,595 While the example above focuses on a basket of select few stocks that were added to the index just last year, investors anticipating index inflows may construct a basket of likely beneficiaries around quarterly rebalances as well, all while hedging market exposure through Nasdaq-100 futures. More sophisticated implementations may involve combining several expected gainers and losers within the same portfolio, or dynamically adjusting hedge ratios to reflect differing betas and index sensitivities across constituents. MNQ futures allow investors to tailor strategies to their own risk preferences and market views, while maintaining the objective of isolating stock-specific performance from broader market movements. This content is sponsored. MARKET DATA CME Real-time Market Data helps identify trading setups and more effectively express market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs at tradingview.com/cme. DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed.