Nvidia to get 20% weighting and billions in investor demand, while Apple demoted in major tech fund
Nvidia's blistering rally will force a major technology exchange-traded fund to acquire more than $10 billion worth of shares of the chip giant while cutting dramatically back on Apple.
The index that the Technology Select Sector SPDR Fund (XLK) follows will soon rebalance, based on an adjusted market cap value from Friday's close. The new calculations show Microsoft as the top stock in the index, followed by Nvidia and then Apple, according to Matthew Bartolini, head of SPDR Americas Research.
All three stocks would have a weight above 20% in the index if there were no caps in place. But diversification rules for the index limit how big the cumulative weight of stocks with at least a 5% share of the fund can be.
As a result, Microsoft and Nvidia will likely have a weight of around 21%, while Apple will fall sharply to about 4.5%, Bartolini said.
That is a change from the prior weightings, which saw Nvidia's weight be kept artificially low by index rules. As of June 14, Microsoft and Apple were both at about 22% each in the fund, while Nvidia was just 6%.
The race to finish in the top two came down to the final day. As of Monday, market cap data from FactSet shows that all three companies are over $3.2 trillion and within $50 million of each other, though that data does differ slightly from the calculations used in the index.
The XLK has about $71 billion in assets under management, so a 15-percentage-point change in the fund equates to more than $10 billion. SPDR does not comment on specific trading strategies around rebalances.
The big shift in the XLK is an extreme example of how even passive index funds can diverge, especially when focusing on narrow slices of the market.
"Understanding how they might be weighted, where