The Technology Select Sector SPDR Fund (XLK) may be on the verge of a rebalancing due to concerns over market concentration. As the biggest tech giants like Apple (AAPL), Nvidia (NVDA), and Microsoft (MSFT) continue to drive market gains, the ETF needs to rebalance its portfolio to meet the fund’s rules. However, such a move could have far-reaching implications for the companies themselves and the broader markets.
Yahoo Finance’s Jared Blikre breaks down the details, shedding light on the implications for individual stocks and the overall market.
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This post was written by Angel Smith
Video Transcript
A rebalancing is in order for one popular tech sector.
ETF.
It’s according to Spiders America Research for more on what will come of these changes.
Let’s get right to Yahoo Finance’s Jared Blicker Jared.
You know, we we look at the screen quite a bit, but I don’t always always break it down.
This represents 11 different large cap sectors and the ETF that represent them.
For the S and P 500.
That would be large cap stocks.
And today we’re talking about XL K and in fact, that is the number one performing sector this year in the S and P 500 XL K. This contains Apple, Microsoft, NVIDIA and many of the chip names that we have seen performance for this year.
But something interesting has happened because of the out performance of not only Microsoft but also Apple and NVIDIA.
They’ve done so far.
They’ve done so much better than the rest of the market that we are now facing market market concentration issues with respect to the make up of XL K. So if you took a look at the S and P 500 infotech performance going back, let’s say to October of 2022.
There is a huge disparity between the performance of the theoretical index value and XL K itself.
Because of this now, currently, Microsoft is making up 22% of the index right there, you can see Apple is 21% and NVIDIA is only 6%.
But if without these rules, we would see each of those numbers closer to 20.
So because of what happened last Friday, that’s, uh, NVIDIA closing higher than Apple with a bigger weight.
Uh, we are going to have them switch place in the index, so Apple is going to go from 21% of the index all the way down to 5%.
NVIDIA is going to go from 6% all the way up to 20% and this represents some pretty big dollar movements.
So that’s going to be $11.4 billion worth of selling for Apple, which represents an entire day on average, and about $10 billion gains a $10 billion in buying for NVIDIA.
That’s about one quarter of the daily volume, enough to say that it could cause hiccups in the market except to say that this is very well telegraphed, and the rebalancing is expected to happen on Friday.
It’s quite possible that we’ve already seen the market moves that have a kind of representative and that that’s because we saw an apple that closed down on Friday afternoon, and that was something that was anticipated.
So the bottom line is, investors are probably ahead of this in this one.
But I think it would come as a surprise to me, the investors that they have been under performing their benchmark index.
That would be, uh, the the S and P 500 Technology Index by such a large degree because of these kind of archaic concentration holdings and arch, uh, concentration rules that are in effect and that are now being applied, I hope that clears everything up.
Yeah, really interesting and comprehensive.
Look at this whole process, Jared and and why It’s important.
Also, a lot of money follows this stuff.
Thank you.
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