NVIDIA has reached a new record high, boosting its profitability and tempting investors to jump on board. Despite this, passive investors relying on ETFs have missed out on these gains. Other tech giants like Qualcomm, Microns, KLA Corp, and Lam Research have also hit record highs, contributing to the S&P 500 technology index’s impressive 31% year-to-date return. However, the Technology Select Sector SPDR Fund (XLK) has been underperforming, mainly due to the domination of big tech names like Apple, Microsoft, and Nvidia, which limit their weighting in ETFs to comply with regulations.
In an effort to rebalance, the XLK ETF will reduce Apple’s stake and increase Nvidia’s, a move that will require the sale of $12.7 billion in Apple stock and the purchase of $11 billion in Nvidia stock. This adjustment stems from Depression-era laws that prevent excessive concentration of individual stocks in indices. While this rebalancing may shake up the market temporarily, the highly liquid nature of these stocks should mitigate any negative impact on investors.
In the midst of this tech frenzy, other companies like Walmart, Gamestop, and Abercrombie & Fitch have also demonstrated strong growth this year. However, the passive investment strategy favored by many could leave them vulnerable to missing out on gains when a few key players dominate the market.
Overall, the tech sector continues to thrive, but passive investors may need to adjust their strategies to keep up with the changing landscape of the market. Stay updated with the latest stock market news and analysis to make informed investment decisions.
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https://finance.yahoo.com/news/nvidias-surge-reveals-a-pitfall-of-passive-investing-morning-brief-100128356.html