Nvidia gains 20% weighting and attracts billions of investor demand, while Apple is downgraded in prominent tech fund.

Nvidia Corporation has experienced a significant rally in its stock price, which will result in a major technology exchange-traded fund, the Technology Select Sector SPDR Fund (XLK), acquiring over $10 billion worth of Nvidia shares. The rebalance of the fund will also involve a dramatic reduction in Apple’s weighting, with Microsoft now taking the top spot in the index. Nvidia’s weight in the fund will increase to around 21%, while Apple’s weight will fall sharply to about 4.5%.

The XLK shake-up comes as all three companies – Microsoft, Nvidia, and Apple – are closely competing in terms of market capitalization, with each being over $3.2 trillion. The rebalance of the fund will result in a significant change in assets under management, with a 15-percentage-point shift equating to over $10 billion. The fund managers do not comment on specific trading strategies revolving around rebalances.

This shift in the XLK fund reflects the importance of understanding how index funds are weighted and allocated, as it can create differences in exposures and overall performance. The Technology Select Sector Index that the XLK follows utilizes a float-adjusted calculation to determine market cap, taking into account large holders of individual stocks who may not be actively trading. For example, Warren Buffett’s Berkshire Hathaway’s ownership of more than 5% of Apple could affect its free-float market capitalization in the index.

The rebalance of the XLK fund will be in effect for one quarter, regardless of any significant outperformance by Apple or Nvidia ahead of the official date. The shift in weightings highlights the potential differences in exposures and performance that can arise within passive index funds, especially when focusing on narrow segments of the market. The fund will officially implement the rebalance at the end of the week, with Microsoft taking the lead in the index, followed by Nvidia and a significantly reduced Apple weighting.