One of the world’s largest technology funds, the $72.34 billion Technology Select Sector SPDR Fund, managed by State Street Global Advisors, is set to significantly increase its exposure to Nvidia (NASDAQ:NVDA). This move comes as Nvidia has recently become the world’s most valuable company.
Matthew Bartolini, head of SPDR Americas research at State Street, confirmed that the fund will buy approximately $10 billion in Nvidia shares while reducing its holdings in Apple (NASDAQ:AAPL). The changes are in line with upcoming adjustments to the S&P Dow Jones Technology Select Sector Index, which the fund tracks. This reshuffle will result in Microsoft (NASDAQ:MSFT) and Nvidia sharing the top positions in both the fund and the index, with Apple moving to the runner-up spot.
On Tuesday, Nvidia’s market value reached $3.33 trillion, surpassing that of Microsoft.
Currently, the technology ETF holds 22.5% of its assets in Microsoft, 21% in Apple, and only 6% in Nvidia, as noted by Jay Woods, chief global strategist at Freedom Capital Markets. This allocation has caused the fund to underperform its benchmark as Nvidia’s shares have surged 173% this year.
By the end of trading this Friday, following the index rebalancing based on last Friday’s market cap values, Microsoft and Nvidia will each have a 21% weighting in the SPDR ETF, while Apple’s weighting will drop to 4.5%.
Nvidia’s shares recently rose 3.7% to $135.85, while Apple’s fell 1.5% to $213.33.
“The fact that Nvidia is up and Apple shares are down today may reflect that a rebalancing in the ETF is already underway,” commented Steve Sosnick, chief strategist at Interactive Brokers.
Index and portfolio construction rules stipulate that only two of the three tech giants can hold a full 21% weighting in the ETF. Any other significant positions cannot exceed 4.5%. This rule, established in 1998 when the index was launched, limits total exposure to stocks with a weighting of more than 5% in the broader S&P 500 index to 50% of the portfolio.
The scenario of three technology giants competing for the top two spots in the ETF’s portfolio is “unprecedented,” according to Bartolini.
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