ETFs
Huge Tech ETF Set to Buy $10 Billion of Nvidia Stock
By Suzanne McGee and Lisa Pauline Mattackal
(Reuters) – One of the world’s largest technology funds is set to increase its exposure to Nvidia, which has become the world’s most valuable company following a meteoric rise in its shares.
The $72.34 billion SPDR Technology Select Sector fund (XLK), managed by State Street Global Advisors, will buy some $10 billion worth of Nvidia shares while reducing its exposure to Apple, confirmed Matthew Bartolini, head of SPDR Americas research at State Street.
The changes are being made so that the fund can align its holdings with pending changes in the S&P Dow Jones Technology Select Sector Index, which it tracks. The shakeup would leave Microsoft and Nvidia sharing top spot in the fund and index, with Apple becoming second, according to Bartolini.
On Tuesday, chipmaker Nvidia became the world’s most valuable company as its market value reached $3.33 trillion, surpassing that of Microsoft.
Until now, the tech ETF had 22.5% of its assets invested in Microsoft, 21% in Apple and just 6% in Nvidia, according to Jay Woods, chief global strategist at Freedom Capital Markets. This has caused the fund to underperform its benchmark, with Nvidia shares up 173% 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 maintain its dominance within the SPDR ETF portfolio, with a weighting of 21 %. Nvidia will also have a 21% weighting, while Apple will dip to 4.5%.
Nvidia’s shares recently rose 3.7% to $135.85, while Apple’s shares fell 1.5% to $213.33.
“The fact that Nvidia is up and Apple shares are down today may reflect that a rebalancing” of the ETF is already underway, said Steve Sosnick, chief strategist at Interactive Brokers.
Index and portfolio construction rules mean that only two of the three tech giants can have 21% ownership in the ETF. Any other significant position cannot exceed 4.5%. The rule, put in place in 1998 when the index launched, caps total exposure to all stocks with a weighting of more than 5% in the broader Standard & Poor’s 500 index at 50% of the portfolio.
The fact that three tech giants are vying 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)