Nvidia Eclipsing Apple Threatens Radical Shakeup of $67 Billion ETF
What triggered the potential shake-up in the Technology Select Sector SPDR Fund (XLK)?
The potential shake-up in the Technology Select Sector SPDR Fund (XLK) was triggered by Nvidia Corp. catapulting past Apple Inc. in size. Due to diversification rules, the $67 billion ETF has held fewer Nvidia shares for months, while the AI giant continues to soar1. Currently, Nvidia makes up roughly 6% of the fund's assets, compared to 21% for the S&P 500 Information Technology Index. This underperformance has prompted discussions of a potential radical shakeup in the ETF, with Nvidia's ownership in XLK possibly undergoing a drastic elevation during a quarterly rebalance.
How does Nvidia's current asset percentage in XLK compare to its percentage in the S&P 500 Information Technology Index?
Nvidia's current asset percentage in XLK is around 6% of the fund's assets, while it makes up 21% of the S&P 500 Information Technology Index. This underweight position of Nvidia in XLK has led to the ETF underperforming this year.
What changes might occur in XLK's asset allocation if Nvidia maintains its value edge over Apple by the upcoming quarterly rebalance date?
If Nvidia maintains its value edge over Apple by the upcoming quarterly rebalance date, a significant shuffle in XLK's asset allocation could occur. Nvidia's ownership in XLK could undergo a drastic elevation, with the chipmaker's representation potentially increasing to as much as 21% of the fund's assets. Meanwhile, Apple's weight in the fund, which is currently at 21%, could drop to as little as 4.5%. This would require XLK's manager, State Street Global Advisors, to load up on Nvidia shares to the tune of $10 billion while selling around $11 billion of Apple shares. This potential shift in allocation would make XLK more semiconductor-focused and more momentum-oriented, which may change how the ETF trades and fits into an investor's portfolio.