A major technology exchange-traded fund is set for a major overhaul later this month that would boost exposure to NVIDIA Corp (NASDAQ:NVDA) at the expense of Apple Inc. (NASDAQ:APPL) and suddenly lead to billions of dollars in trading volume.
State Street Capital Advisors plans to shuffle the makeup of its $71 billion Technology Select Sector SPDR Fund (NYSE:XLK) after Nvidia's market value closed above Apple on Friday.
State Street is expected to buy $11 billion of Nvidia shares and dump $12 billion of Apple, a divestiture that would equal to Apple's average daily trading value over the past three months, Bloomberg reported.
This would reverse the positions of Apple and Nvidia in the ETF with the former's weight dropping to 4.5% and the latter rising above 20%, according to calculations sent by the S&P 500 Information Technology Index to market participants familiar with the matter.
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Matt Bartolini, head of SPDR Americas Research at State Street, said XLK will rebalance according to its rules and methodology. The ETF must track the S&P benchmark to stay in compliance with the diversification regulations, according to Bloomberg.
S&P has left the door open to making an exception when it unveils sector weightings at the end of the month, judging by a document sent late last week and seen by Bloomberg News.
The index committee "reserves the right to make exceptions when applying the methodology if the need arises," S&P wrote in a note regarding the June rebalance, Bloomberg reported.
"In any scenario where the treatment differs from the general rules stated in this document or supplemental documents, clients will receive notice, whenever possible."
S&P said it will send clients so-called proforma documents related to the rebalance for sector indexes each day through Friday.
Price Action: Technology Select Sector SPDR Fund gained 1.52% to close at $231.12 on Monday, while Nvidia Corp slipped 0.68% to end the day at $130.98. Apple Inc. gained 1.97% to close at $216.67 on Monday.
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