The Technology Select Sector SPDR Fund (XLK), managed by State Street Global Advisors, is increasing its exposure to Nvidia by purchasing about $10 billion in Nvidia shares. This move comes after Nvidia surpassed Microsoft to become the world’s most valuable company. The changes in the fund’s holdings are being made to align with pending changes in the S&P Dow Jones Technology Select Sector Index, which it tracks.
According to Matthew Bartolini, head of SPDR Americas research at State Street, the shakeup will result in Microsoft and Nvidia sharing the top spot in both the fund and the index, with Apple moving into second place. Previously, the tech ETF had 22.5% of its assets invested in Microsoft, 21% in Apple, and only 6% in Nvidia. This caused the fund to underperform its benchmark index, as Nvidia shares have seen a significant increase of 173% this year.
When the index is rebalanced based on last Friday’s market cap values, Microsoft will retain a 21% weighting in the SPDR ETF portfolio. Nvidia will also have a 21% weighting, while Apple’s weighting will drop to 4.5%. This rebalancing will reflect the current market trends, with Nvidia shares rising and Apple shares falling.
The index and portfolio construction rules dictate that only two of the three tech giants can have a combined weight of 21% in the ETF. Any other significant position must not exceed a 4.5% weighting. This rule, established in 1998, limits the total exposure to stocks with a weighting of over 5% in the broader Standard & Poor’s 500 index to 50% of the portfolio.
The competition for the top two spots in the ETF portfolio between three tech giants is unprecedented, according to Bartolini. The changes in the XLK fund’s holdings aim to position it better to capitalize on the growth potential of Nvidia and adapt to the changing landscape of the technology sector.
In conclusion, the Technology Select Sector SPDR Fund’s decision to increase its exposure to Nvidia highlights the dynamic nature of the technology market and the importance of adapting to market trends to maximize returns for investors.
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