Nvidia to get 20% weighting and billions in investor demand, while Apple demoted in major tech fund
How close are Microsoft, Nvidia, and Apple in terms of market cap, and how did this affect their rankings in the XLK?
Microsoft, Nvidia, and Apple have very similar market capitalizations, all being over $3.2 trillion. This close competition affected their rankings in the Technology Select Sector SPDR Fund (XLK), which is a major technology exchange-traded fund. Due to the adjusted market cap values, the index rebalanced, resulting in Microsoft being the top stock in the index, followed by Nvidia and then Apple. Microsoft and Nvidia will likely have a weight of around 21% in the XLK, while Apple's weight will fall to about 4.5%. This is a significant change from their previous weights, where Microsoft and Apple were both at about 22% each in the fund, while Nvidia was at 6%.
How do diversification rules affect the maximum weight that any single stock can hold in the XLK?
Diversification rules for the XLK index limit the maximum weight that any single stock can hold in the fund. Specifically, these rules dictate that the cumulative weight of stocks with at least a 5% share of the fund cannot exceed a certain threshold. As a result, even if a stock like Nvidia experiences a significant rally and its market cap value would warrant a higher weight in the index, the diversification rules would prevent it from having an overly large representation in the fund. In the case of the recent rebalance, Microsoft and Nvidia will likely have a weight of around 21%, while Apple's weight will fall to about 4.5%. These rules help ensure that the fund is sufficiently diversified and not overly concentrated in a few top stocks.
How does the $71 billion in assets under management at XLK relate to the $10 billion shift due to the rebalance?
The $71 billion in assets under management at XLK refers to the total value of the investments held by the Technology Select Sector SPDR Fund1. The upcoming rebalance of the fund will result in a shift of more than $10 billion from Apple to Nvidia, as their weights in the index change. This shift is due to the significant performance difference between the two stocks, with Nvidia experiencing a blistering rally and Apple's weight being artificially lowered by index rules. The rebalance will adjust the weights of these stocks in the index to better reflect their current market capitalization. The $10 billion shift represents the impact of the rebalance on the allocation of the fund's assets, as it redistributes investments between Microsoft, Nvidia, and Apple.