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06/21/2024 |

The XLK Rebalance: What It Means For Apple and NVIDIA

This is the header image of the XLK rebalance blog post. It features the XLK weekly chart.

The XLK (Technology Select Sector SPDR Fund), the second-largest technology sector ETF by assets under management, is set for a significant rebalancing this Friday. XLK, which manages $72 billion in assets, will drastically shift its allocation, increasing NVDA’s (Nvidia) weighting from approximately 5% to over 20% and reducing AAPL‘s (Apple) weighting from about 21% to 5%. This move will make Nvidia the second-largest holding in the ETF, surpassing Apple. MSFT (Microsoft) will retain its top position in the index, as confirmed by State Street Global Advisors, the fund’s issuer.

Reasons Behind XLK’s Rebalancing & Market Impact

The rebalancing is driven by Nvidia’s recent surge in market capitalization, which recently surpassed Apple’s. The Technology Select Sector Index, which XLK tracks, requires the ETF’s holdings to mirror the index’s weightings. Consequently, XLK must sell around $11 billion worth of Apple shares and buy nearly $10 billion worth of Nvidia shares to align with the new weightings.

The rebalancing of XLK is expected to create upward pressure on Nvidia’s stock price and downward pressure on Apple’s, as the ETF adjusts its holdings. However, the exact market impact remains uncertain and will depend on various factors, including how investors anticipate and react to the changes. While immediate price movements might be noticeable, long-term effects will be influenced by the companies’ individual performances and broader market conditions. This significant shift underscores the importance of understanding ETF rebalancing and its potential market implications.