By Suzanne McGee and Lisa Pauline Mattackal
(Reuters) – One of the world’s largest technology funds is poised to boost its exposure to Nvidia, which has become the world’s most valuable company after a blistering share price rise.
The $72.34 billion Technology Select Sector SPDR Fund (XLK), managed by State Street Global Advisors, will buy about $10 billion of Nvidia stock while reducing its exposure to Apple, confirms Matthew Bartolini, head of SPDR Americas Research at State Street .
The changes are being made so the fund can align its holdings with upcoming changes in the S&P Dow Jones Technology Select Sector index, which it tracks. The reshuffling would see Microsoft and Nvidia share the top spot in both the fund and index, with Apple coming in second, according to Bartolini.
Chipmaker Nvidia became the world’s most valuable company on Tuesday when its market value reached $3.33 trillion, surpassing that of Microsoft.
To date, the tech ETF had invested 22.5% of its assets in Microsoft, 21% in Apple and just 6% in Nvidia, according to Jay Woods, chief investment strategist at Freedom Capital Markets. That caused the fund to underperform its benchmark as Nvidia shares rose 173% this year.
By the end of trading next Friday, when the index rebalance takes place based on last Friday’s market cap values, Microsoft will maintain its dominance within the SPDR ETF’s portfolio, with a 21% weighting. Nvidia will also have a 21% weighting, while Apple will drop to 4.5%.
Nvidia shares recently rose 3.7% to $135.85, while Apple’s shares fell 1.5% to $213.33.
“The fact that Nvidia is rising today and Apple shares are falling may indicate that a rebalancing in the ETF is already underway,” said Steve Sosnick, chief investment strategist at Interactive Brokers.
The rules for index and portfolio construction mean that only two of the three tech giants can have a full weighting – 21% – in the ETF. Other large positions may not exceed 4.5%. The rule, introduced in 1998 when the index was launched, limits total exposure to all stocks with a weighting of more than 5% in the broader Standard & Poor’s 500 index to 50% of the portfolio.
The fact that three tech giants are competing for the top two spots in the ETF’s portfolio is “unprecedented,” Bartolini noted.
(Reporting by Suzanne McGee, additional reporting by Lisa Pauline Mattackal; Editing by Sharon Singleton)
