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- Microsoft and Nvidia will likely have a weight of around 21% in this tech ETF, while Apple will be down to about 4.5%, according to Matthew Bartolini, head of SPDR Americas Research.
- The rebalance will be in effect for one quarter, even if Apple outperforms Nvidia significantly ahead of the official date.
- The ETF has about $71 billion in assets under management, so a 15-percentage-point change in the fund equates to more than $10 billion.
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 not 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%.
XLK Shake-Up
| Company | Portfolio weight as of 6/14 | Estimated weighting post-rebalance |
|---|---|---|
| Microsoft | 22% | 21% |
| Nvidia | 6% | 21% |
| Apple | 22% | 4.5% |
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 they’re allocated, what the rebalance frequency is, is really important because it can create differences in exposures and make what’s beneath the label seem different from fund to fund,” Bartolini said.
The fund follows the Technology Select Sector Index from S&P Dow Jones Indices, which uses a float-adjusted calculation to determine market cap. The rebalance officially takes effect at the end of this week.
The free-float adjustment for market cap accounts for large holders of an individual stock that are unlikely to be trading on a daily basis. For example, Warren Buffett’s Berkshire Hathaway owns more than 5% of Apple, which could count against it in the index, Bartolini said.
“Its free-float market capitalization is reduced because you have so many controlled interests in the company,” Bartolini said.
The rebalance will be in effect for one quarter, even if Apple outperforms Nvidia significantly ahead of the official date.
On Monday, shares of Apple were up 1.8%, while Nvidia ticked up 0.2%.
