Are you keeping an eye on the Technology Select Sector SPDR Fund (XLK) and the upcoming rebalance based on Friday’s market caps? If not, you might want to pay attention because some major changes could be on the horizon.
Currently, Apple and Microsoft are the two biggest holdings in the fund, each holding roughly 22% of the total. Surprisingly, Nvidia, despite being right behind the two leaders in market cap, only makes up less than 6% of the fund. This imbalance could result in a significant shift in the fund’s composition, with potential repercussions for investors.
The market caps of Microsoft, Apple, and Nvidia are all very close to each other, raising the stakes for the upcoming rebalance. If Nvidia climbs to second place and displaces Apple to third, it could lead to Nvidia’s weight in the fund surging to 21%, while Apple’s share would drop to just 4.5%. This kind of swing would require the fund to acquire over $10 billion worth of Nvidia shares on or around the rebalance date.
Such a large shift in an index fund is uncommon but not unprecedented. The potential reshuffling in the XLK highlights the concentration risk posed by a few dominant companies in stock portfolios. To diversify and mitigate risk, investors may want to consider equal-weighted strategies such as the SPDR NYSE Technology ETF (XNTK) to balance out their exposure to tech stocks.
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