Tech investors are turning their attention to Nvidia, causing a major technology exchange-traded fund to shift billions of dollars into the chip giant’s shares while reducing its holdings in Apple. The Technology Select Sector SPDR Fund (XLK) will soon rebalance its index to reflect the adjusted market cap values from Friday’s close.
According to Matthew Bartolini, head of SPDR Americas Research, Microsoft will become the top stock in the index, followed by Nvidia and then Apple. Without any caps in place, all three stocks would have a weight above 20% in the index. However, diversification rules limit the cumulative weight of stocks with at least a 5% share of the fund. As a result, Microsoft and Nvidia are expected to have a weight of around 21%, while Apple’s weight will drop significantly to about 4.5%.
This shift marks a significant change from the previous weightings, where Nvidia’s weight was artificially low due to index rules. As of June 14, Microsoft and Apple each had approximately 22% weight in the fund, while Nvidia was at just 6%.
The XLK has around $71 billion in assets under management, so a 15-percentage-point change in the fund represents more than $10 billion. The rebalance is set to take effect at the end of the week and will be in effect for one quarter.
The Technology Select Sector Index from S&P Dow Jones Indices, which the fund follows, uses a float-adjusted calculation to determine market cap. This adjustment accounts for large holders of a stock unlikely to be trading regularly, such as Warren Buffett’s Berkshire Hathaway, which owns over 5% of Apple.
Understanding these weightings and allocations is crucial for investors, as even passive index funds can vary significantly, especially in focused market segments. The rebalance may lead to differences in exposures and performance across different funds tracking the same index.
Despite the upcoming changes, Apple and Nvidia continue to perform well in the market. On Monday, Apple’s shares rose by 1.8%, while Nvidia saw a slight increase of 0.2%. Investors will be closely monitoring how these adjustments impact the performance of the XLK and the individual stocks within the fund in the coming months.