Popular tech ETF forced to dump Apple stock, buy Nvidia in upcoming rebalancing

By Joseph Adinolfi

Nvidia will take the No. 2 spot in the Technology Select Sector SPDR ETF following a close race

A major shakeup is coming to a popular exchange-traded fund that tracks technology stocks.

Following Friday's race-to-the-finish close, State Street Global Advisors has confirmed that Microsoft Corp. (MSFT) will retain the top weighting in the S&P Technology Select Sector Index, while Nvidia Corp. (NVDA) will rise to the No. 2 weighting, dislodging Apple Inc. (AAPL)

See: Popular tech-sector ETF could see major shakeup as Apple, Microsoft and Nvidia jockey for position

As a result, the $71 billion Technology Select Sector SPDR ETF XLK, which tracks the index, could be forced to buy nearly $10 billion worth of Nvidia shares on Friday, while selling more than $11 billion worth of Apple shares, according to a report from analysts at Bloomberg Intelligence shared with MarketWatch last week.

The rebalancing will see Microsoft and Nvidia both wind up with weightings of roughly 21% in the fund once the new weightings are officially implemented at market close on June 21, while Apple's weighting is expected to drop from around 22% on Friday to 4.5%, according to Matthew Bartolini, head of SPDR Americas Research.

Bartolini declined to comment on how the rebalancing might impact the market, but did say in an earlier interview that all trades associated with the rebalancing will take place on the day the new weightings take effect.

Nvidia had a weighting in the fund of roughly 6% as of Friday, up from 4.5% as of last quarter's rebalance, according to data from SPDR. Shares of the chip maker have surged more than 166% in 2024 as of Monday afternoon, according to FactSet data.

Companies with the largest market capitalizations based on S&P Dow Jones Indices criteria are typically awarded the highest weightings in the index, according to guidelines published online by the index provider. However, rules governing the level of concentration force the index provider to cap the weightings of the largest companies if they exceed certain levels.

According to Dow Jones Market Data, Microsoft reigned as the largest company in the S&P 500 SPX by market capitalization as of Friday's close, while Apple was in second place, and Nvidia in third.

However, the methodology used for measuring market capitalization employed by S&P Dow Jones Indices excludes some shares held by so-called strategic investors, including other public companies and sovereign wealth funds, among others. These rules appeared to reduce Apple's market capitalization to below that of Nvidia's for the purposes of the rebalancing.

A representative from S&P Dow Jones Indices declined to comment on the rebalancing or confirm the new weightings in the index.

-Joseph Adinolfi

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(END) Dow Jones Newswires

06-17-24 1352ET

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