Advertisement
Canada markets closed
  • S&P/TSX

    22,673.52
    +129.39 (+0.57%)
     
  • S&P 500

    5,615.35
    +30.81 (+0.55%)
     
  • DOW

    40,000.90
    +247.15 (+0.62%)
     
  • CAD/USD

    0.7338
    +0.0001 (+0.02%)
     
  • CRUDE OIL

    82.18
    -0.44 (-0.53%)
     
  • Bitcoin CAD

    78,964.59
    +1,046.15 (+1.34%)
     
  • CMC Crypto 200

    1,211.34
    +12.77 (+1.07%)
     
  • GOLD FUTURES

    2,416.00
    -5.90 (-0.24%)
     
  • RUSSELL 2000

    2,148.27
    +23.23 (+1.09%)
     
  • 10-Yr Bond

    4.1890
    -0.0040 (-0.10%)
     
  • NASDAQ

    18,398.45
    +115.04 (+0.63%)
     
  • VOLATILITY

    12.46
    -0.46 (-3.56%)
     
  • FTSE

    8,252.91
    +29.57 (+0.36%)
     
  • NIKKEI 225

    41,190.68
    -1,033.34 (-2.45%)
     
  • CAD/EUR

    0.6722
    -0.0025 (-0.37%)
     

A quirk of popular technology ETF has created a $21 billion showdown between Apple and Nvidia

Apple and Nvidia
One analyst predicts Nvidia's market cap may blow past Apple's if the iPhone maker doesn't release generative AI products this year.Fernando Gutierrez-Juarez/Getty (L); NurPhoto/Getty
  • A quirk in the Technology Select Sector SPDR ETF has led to a $21 billion trade showdown.

  • The ETF's concentration limits have caused discrepancies between Microsoft, Apple, and Nvidia weights.

  • If Nvidia becomes the second largest company, a major ETF rebalance will trigger significant trades.

A quirk of a $67 billion technology ETF has created a $21 billion showdown between Apple and Nvidia that's set to be decided on Friday.

At issue is the massive concentration within the Technology Select Sector SPDR ETF, which counts Microsoft, Apple, and Nvidia as its top three holdings.

Because of concentration limits baked into the ETF, which trades under the "XLK" ticker, the sum of companies with a weight above 4.8% cannot exceed 50% of the fund's holdings.

ADVERTISEMENT

Due to the massive size of Microsoft and Apple, that limit has consistently been reached over the past two years, which results in the smallest company with a weight above 4.8% being knocked back down to a 4.5% weight.

That's why there is a massive discrepancy between the weights of Microsoft and Nvidia within the XLK ETF, even though Microsoft's market valuation is only $240 billion more, or roughly 8% larger, than Nvidia's.

Microsoft currently has a 22.4% weight, Apple a 22.1% weight, and Nvidia a 5.7% weight within the XLK ETF, as of June 11.

But if Nvidia can reclaim its spot as the world's second-largest company by the end of this week, the ETF could undergo a massive shakeup when it rebalances later this month.

If Nvidia takes the second-place spot, its weight within the XLK ETF would soar to more than 20%, while Apple's weight would plunge to just 4.5%.

That swap could create a $10 billion trade to buy Nvidia stock and about an $11 billion trade to sell Apple stock, according to Bloomberg.

The concentration limits imposed by the ETF have weighed down the fund's performance amid Nvidia's meteoric rise over the past year-and-a-half.

While Nvidia has just under a 6% weight in the XLK ETF, its weight in the S&P 500 Information Technology Index is at 21%, which has led the ETF to underperform more recently.

As of Wednesday morning, Nvidia needs to gain about $200 billion in market value to become the second biggest company in the world. If it can reach that milestone by Friday, it will spark a $21 billion trade shuffle in the XLK ETF.

Read the original article on Business Insider