One of the world’s largest technology funds is set to ramp up its exposure to Nvidia, which has become the world’s most valuable company following a blistering run in its shares.
The $72.34 billion Technology Select Sector SPDR Fund, managed by State Street Global Advisors, will buy some $10 billion shares of Nvidia while slashing its exposure to Apple, Matthew Bartolini, head of SPDR Americas research at State Street confirmed.
The changes are being made so the fund can bring its holdings inline with pending changes to the S&P Dow Jones Technology Select Sector index, which it tracks. The reshuffle would leave Microsoft and Nvidia sharing the top spot in both the fund and the index, with Apple becoming the runner-up, according to Bartolini.
On Tuesday, chipmaker Nvidia became the world’s most valuable company as its market value hit $3.33 trillion, surpassing that of Microsoft.
Until now, the technology ETF had 22.5 per cent of its assets invested in Microsoft, 21 per cent in Apple, and only 6 per cent in Nvidia, according to Jay Woods, chief global strategist at Freedom Capital Markets. That caused the fund to underperform its benchmark as Nvidia’s shares rose 173 per cent this year.
By the end of trading this Friday, when the index rebalancing takes place based on last Friday’s market cap values, Microsoft will retain its dominance within the SPDR ETF’s portfolio, with a 21 per cent weighting. Nvidia will have a 21 per cent weighting as well, while Apple will plunge to 4.5 per cent.
Nvidia’s shares were recently up 3.7 per cent at $135.85 while Apple’s were off 1.5 per cent at $213.33.
“The fact that Nvidia is up and Apple shares are down today may reflect that a rebalancing” in the ETF already is underway, Steve Sosnick, chief strategist at Interactive Brokers.
Index and portfolio construction rules mean that only two of the three technology giants can be held at a full weight – 21 per cent – in the ETF. Any other large positions can’t exceed 4.5 per cent. The rule, set in place in 1998 when the index was launched, caps total exposure to all stocks with a weighting of more than 5 per cent in the broader Standard & Poor’s 500 index at 50 per cent of the portfolio.
The fact that three technology giants are vying for the top two spots in the ETF’s portfolio is “unprecedented,” Bartolini noted.
